software outsourcing

A blog related to software development company and offshore software outsourcing

Tuesday, May 31, 2005

Software outsourcing to India

India is leading offshore outsourcing destination since a decade. There are many reasons for that like cheap labor, technological agility, low cost and faster time to market, huge English speaking talent pool etc. In today's highly competitive software development business, offshore outsourcing is becoming necessary to maintain competitive advantage and drive down operating costs. US and European developed countries have discovered 40 to 60 percent cost saving as a result of software outsourcing. And what can be a preferred destination for that other then India. India is a talent-rich country. A huge pool of English speaking and computer literate manpower from Indian colleges can continue to cater to the growing demand of software professionals. India has 200 million English speaking people next to US which has 250 million English speaking populations.

Software outsourcing hub India is exporter of software development services to 95 countries. According to Gartner, India is leader in outsourcing and will continue its leadership till 2010. With export to many countries and relation to different culture, India is leader in global methodologies.

Leading companies world wide like Microsoft, IBM, HP, Sun have learned that to maintain their competitive advantage and stay ahead in the race and provide better value to their share holders, they need to reduce cost without compromising quality. For that, India provides highly skilled programmers and project managers who are tech savvy, reliable and innovative. Also, Indian companies are have developed world class systems for global majors. Quality and maturity of Indian software companies can be measured from the fact that, over 50% of the SEI CMM level 5 companies world wide are in India.

Also for software outsourcing, India enjoys confidence of multination corporations. According to a survey, 82% US companies mentioned that, India is their first choice for software outsourcing. Bill Clinton has applauded India's brain power and pointed that, Indian American run more then 750 IT companies in Silicon Valley. He also mentioned, ."You liberated your markets and now you have one of the 10 fastest growing economies in the world'. Bill Gates has mentioned that India is IT super power. That’s why Microsoft has strategic alliances with wipro and infosys for their .NET development platform. GE has $130 million technology center in Bangalore. It is largest research center outside US opened by GE. There are hundreds of multinational companies opening their offices in Bangalore.

Government of India is also keen to develop IT industry. India is biggest democracy of world and has world's 10th fastest growing economy. Indian government is trying to make India world's back office with its 1 billion population. According to Nasscom, India's revenue from IT enabled services will rich $16.94 billion. Government has also passed Information Technology Act 2000 which is now widely known as IT Act 2000. It brings e-commerce under law and states punishments for "cyber criminals". With this, India is in the league of 12 nations who have cyber laws. Government of India is providing tax benefits under STPI, SEZ and many other schemes to IT companies and promoting IT export. Special policies like single window clearance have been implemented. STPI offers world class infrastructure and various facilities, incentives to promote software development and export. It also allows 100% tax benefit. Because of all benefits given by government, Indian IT business is growing at the rate of above 40% and contributing heavily to its GDP.

Software outsourcing to India - Tatvasoft
Tuesday, May 31, 2005

Global outsourcing

Global Software outsourcing - Around 25% of high technology jobs today in developed countries will go to emerging market like russia by 2010. This was reported by Gartner Inc., world leader in research. Gartner presented its analysis and trend in outsourcing at Symposium ITxpo in Barcelona, Spain.

According to Roger Cox, Managing Vice President, Gartner "Last year saw a phenomenon in Europe,Out of 15 one billion US dollar mega-deals signed in 2003, 10 were awarded by Europe-based enterprises. Until 2003, Europe-based organisations had only signed a total of 14 mega-deals since 1989." Vicepresident Ian Marriott mentioned that, global outsourcing is becoming mainstream delivery model.

Potential cost advantages of outsourcing are such a high that, comapnies whicha are not considering outsourcing seriously are harming their shareholders. On the other hand, busienss also loose its competitive advantage and inability to focus on growth.

It was also mentioned that, India is the prefeered destination for outsourcing, although china and russia are picking up as strong contenders. Many other countries are also eyeing the potential offshore software outsourcing business. Though outsourcing boom was late in Europe compare to US, it is catching up well with year 2003 as turning point.

Mr. Marriot also mentioned, "There is no doubt that the predicted shift in jobs associated with global sourcing is a harsh reality. However, there is nothing new about technology causing massive shifts in how and where people work. This is an unavoidable outcome of how the global marketplace operates today and western economies have been successful in navigating successive waves of economic transformation in the past."

Gartner also mentioned need of investment in new skills for organizations to make outsourcing work and that will create additional jobs.
Monday, May 30, 2005

UK becoming hottest destination for Indian outsourcing comapanies

According to new report, first time, UK has became leading market for outsourcing. The UK has overtaken US to become the top national market for new outsourcing contracts. According to TPI, UK represented 37% of the market for major outsourcing contracts awarded worldwide in this year. UK is followed by US - 25% and Asia-Pacific with 4%. However, it is understood that, UK will not continue its leading position as majority of the outsourcing chunk is because of deals by Reuters and BT. Even in this quarter, without reuters and BT, UK would have been second largest national market.

However, Europe still dominates market and accounted for over 50% of the new contracts worldwide. According to Duncan Aitchison, TPI's Managing Director, International:
“While some may argue that Europe’s €2.4 billion mega deal – the Reuters/BT contract – skews the results for this first quarter, Europe still accounted for well over half (57%) of new contracts worldwide – a high point for European outsourcing.”

Also, so-called big six supplers in the outsourcing market which are - Accenture, ACS, CSC, EDS, HP and IBM have seen their combined market sahre to fall by 57% in the first quarter of 2005. 60% of the senior management in UK comapnies are looking at big indian outsourcing providers who are providing outsourcing services like their western counterparts but at low cost. This growing confidence in Indian outsourcing companies will further allow increase in their market share and decrease in the market share of big six and other western consulting companies. This also gives a wider choice for clients.

Though confidence in Indian outsourcing companies is increasing, news like cheating creditcard by the employees of indian BPO companies can affect them. According to reports the some employees of indian BPO company used their call centre positions to trick customers into giving them their creditcard numbers.

Tatvasoft - Software outsourcing India
Saturday, May 28, 2005

Software Outsourcing India

What are the points to succeed in software outsourcing? Effective communication, rigorous planning and proper project management. Outsourcing means shifting development work to the world where labour is cheaper. Outsourcing is not a new concept. Everybody do outsourcing. Whether its house cleaning or software development. But software outsourcing has appeale a lot.

In software outsourcing, software development projects are developed by offshore team. General communication takes place using messengers and email. But with the increasing reach, sophistication of communication and new product developments like Skype has put offshore development teams within earshot. That is why currently offshore outsourcing is impossible to ignore. And many executives are using IT outsourcing as a strategy to boost their company value and share prices. Many surveys have provided firm evidence that if outsourcing deal is successful, it can have a positive impact on company's share value.

In outsourcing, it is very important that outsourcing service provider adopts to client's requirements and software outsourcing business model. Generally waterfall development system is more useful in offshore development although, its all about mututal understanding between client and vendor. Because success does not reply totally on picking up the waterfall model.
Friday, May 27, 2005

offshore outsourcing by eBay

eBay to invest $21m in India over next 2 years

eBay, the world’s leading online auctioneer, is exploring options to increase the business IT offshores to India which currently include technology support and customer relations and later integrate them with its Indian division — eBay India

eBay has acquired before some time and has migrated it to eBay platofrm

Although, conuntry manager, eBay India mentioned all plans are in initial stage, and at the mommnt company management is discussing all options to make use of talent pool in India. eBay is using Cognizant technology solutions to courrently outsource technology related work, while Daksh is providing customer support.

“eBay has plans to ramp up its operations in India considering the opportunities here and investments to the tune of $ 20 million are lined up for deployments in another 1-2 years. We will also ramp up our headcount substantially in India which is currently around 120 employees,’’ said Mr Bajaj, country manager India.
Thursday, May 26, 2005

Software outsourcing Testing

Outsourcing WebSite Testing
A company might consider outsourcing a website's testing for several

1. The company may be launching a new site, or a new version of their site, and may feel that most testing tasks can be relegated to offshore provider.
2. The company may not have the resources -- people, skills, software, hardware or time - to perform testing.
3. The project to be tested may be of such as short life span that the company doesn't need any long-term investment in testing processes.
4. The company might want an independent third party to perform the testing, in order to get a more objective view of site quality.
5. The company may even be outsourcing the development and coding for the site, making the outsourcing of the testing a reasonable decision. (Even more reasonable would be a firm that provides the coding and the quality control for its own code.)

The decision to outsource testing needs to be a well-considered decision, because most people who aren't responsible for the testing misunderstand the meanings and scopes of the concepts involved in testing. Two very important issues must be resolved before taking the outsource step: first, the company that owns the website must be absolutely clear about the scope of the job -- including the tasks, processes, and responsibilities -- that they want to hire out; and second, the company must be sure that they are speaking the same "language" as the test firm they will hire.

If I want to outsource any testing tasks for website development, I need to understand clearly the nature of the tasks, and how the tasks fit into the overall quality plan for the site. Many testing tasks can be parsed out to contractors; for example, hiring another firm to perform usability reviews makes excellent sense because many firms specialize in usability testing. Usability testing, however, is not the same as quality assurance, and if I hire a usability firm under the assumption that my quality assurance needs are thereby being handled I will be making a very big mistake.

If I want to outsource quality control for my site, I'm making certain assumptions about how I will do business. Quality control is a system for testing all output against a standard of quality; this is an ongoing process, because in a proper quality control environment all output has to be tested. If I hire a firm to help me test prior to launching a site, I need to either form a partnership with the test firm to help with future production or build my own team of quality control testers.
Neither option is necessarily difficult, but I have to consider this before making the decision to outsource because the choice will affect my future workflow.

If I want to outsource quality assurance, I'm making a decision to introduce the test firm deeply into my company's decision process. Quality assurance is a pro-active process that requires close proximity to all phases and aspects of the creation and maintenance of a website. If I exclude the role of quality assurance from important meetings and discussions -- for example, design meetings -- I'm crippling the process. Quality assurance is an order of magnitude more complicated,
more involved, and more important than testing of quality control alone, and assurance requires constant attention and a penetrating interest in improving everything. This understanding must play a role in any discussion of outsourcing quality assurance.

I do think that a skilled and dedicated testing firm can be a vital part of a quality assurance effort, as long as the process, and the relationship, are managed by somebody on the website's team who is ultimately responsible for the process. Outsourcing testing tasks is a great idea, especially if it frees up resources -- time and attention -- for the web team to focus on higher-level issues. I'd gladly pass off browser compatibility testing to have more time to work out architectural issues, for example.

Issues to Consider When Outsourcing Testing

I spell out some points below that I think are important to address when making the decision to outsource testing for a commerce site. This is a big decision, and approaching the decision itself from a quality assurance point-of-view shows that outsourcing testing is not> simply a matter of jobbing out a set of simple tasks.

Understand the scope of what you will outsource.

Who is writing your code?

Testing is not quality assurance.

Testing is a method used within the quality assurance process, and if it is correctly managed, outsourcing some testing tasks makes some sense, especially if you don't want to invest in the resources required for a fair-sized lab. Having a contractor perform browser compatibility tests in their own lab can be a great saver of time and capital for a busy start-up venture.

Every change should be tested. The quality control process measures all products to verify they meet a standard of quality; if you have a formal quality control process, then everything that goes out must be tested. If you outsource testing, then you must make long term decisions on how to handle all published output. You'll either need to retain a testing firm for ongoing production needs, or train your own team. Either way, the quality control process is basic to your ability to provide quality to your customers, and so should be managed by your company.

Quality assurance is about processes. Quality assurance requires constant and deep involvement in the planning, design, and development phases of a major project, because QA focuses on processes. Getting QA involved up front will save you money, as studies show that bugs cost significantly less the earlier they are caught. Outsourcing QA would require a very, very close partnership with the contractors. Ask yourself if you want to include a testing firm in every design meeting -- if not, then they won't be able to act effectively in a quality assurance role.

A successful launch will fork your priorities. When the website launches, you will find your priorities splitting in two directions: maintenance of the site and development of the next site iteration. Both phases require QA and testing attention, but your greatest resource will be attention. If you expect a concerted ongoing web effort, then you need to involve testing and QA in both tracks. Ask yourself if you want to be chained to a contractor's schedule for releasing new code. If you need to make a change to the code in response to an emergency, who tests that code before publication to the web? If testing is to be performed by a contractor, then they necessarily have a say in the scheduling by virtue of their availability.

Audience identification is a critical business priority.

Quality assurance is deeply involved in the definition of the site's audience, including identification of the target browsers and platforms used by the audience. I read recently [May 1999] that Windows 2000 is being released OEM on some brands of PC -- this means I have to evaluate the importance of this platform to my audience, and, if my research shows it is necessary, incorporate this platform into my testing. If I outsourced my testing, I would have to wait for them to verify my site's support for this platform; if I outsourced my QA, I'd have to wait for them to decide how important this platform was to my targeted audience but this really a business decision.

Quality assurance for websites is a partisan role.

I feel that quality assurance is best done by people with passion towards the product, the company, and the mission. The members of a quality assurance team should be ombudsmen for their audience, and should represent the user at design and development meetings. QA staff should inject a consideration for usability into every process and discussion. I don't think you can outsource a passionate QA team, even though I'm sure you could find an outsource team passionate about doing a good job of testing. Ask yourself how important the website is to the success of your company. If the website does more than present brouchureware, then you should consider the website a capital investment.

Who will set and maintain the standards?

When outsourcing a process or elements of a process that is by its nature ongoing, all parties involved must be clear on who sets the standards and who maintains the standards. For a testing effort, you must control those standards, and you must have a mechanism through which you can change those standards. You also need a mechanism through which the contractor can provide you feedback about the appropriateness and accuracy of those standards.

The management of quality assurance shouldn't be outsourced.

If you outsource any part of your testing process, you should create a full-time position in your company for somebody to manage quality assurance; this person should liaise with and set the direction for any testing contractors. A wide range of tasks fall under the umbrella of quality assurance, including testing -- usability, compatibility, integration, regression, etc. as well as requirements management, design reviews, and reviewing customer complaints. Don't set an expectation for quality assurance when you are only paying for testing.

Advantages of Outsourcing Testing

Outsourcing some kinds of testing can have definite advantages.

Getting Stuff Done: Even the best team runs out of the time or bodies necessary to get certain tests accomplished. If hiring a test firm to perform certain tests takes care of some test goals, then outsourcing is a great idea.

Hiring Expertise: Some tests are best performed by experienced professionals, either because the necessary knowledge requires specialize education or backgrounds, or because the necessary skill set can't be learned under a short deadline. Moreover, some tests require a specialized understanding in order to interpret and analyze the results, and it makes sense to outsource these tests.

Hiring Authority: Some kinds of tests -- and some kinds of test firm -- have an authority that a homegrown test team may not be able to compete with. Company executives often find it easier to accept critical results if they come from a third-party, rather than from their own test team (speaking from experience here).

Hiring a Neutral Point-of-View: Sometimes having an independent team perform testing tasks can provide an objective point-of-view about quality issues like usability or compatibility. Even if I am rigorously fair in my compatibility testing, I'll still have browser prejudices; I'll still have a favorite browser and platform, and so may tend to do the majority of my testing with them. Outsourcing some testing may provide me with more data, and hopefully unbiased data.

Hiring a Fresh Set of Eyes: Involving a new team in testing exposes the code to new test tools and methods; a test firm may find defects your tools were unable to find.
Wednesday, May 25, 2005


Disney will carve 1,000 IT staffers from its payrolls, shipping many of these workers to outsourcers IBM and Affiliated Computer Services (ACS), according to a media report.

The cuts - which will account for close to one-third of Disney's total IT department - are expected to begin in mid-July. The employees affected work in Orlando, Los Angeles and New York, reported the Orlando Sentinel. Most of the IT folks will likely take on similar roles at IBM or ACS. Disney isn't commenting on how many staff will end up without jobs, at this time.

Disney told workers of these moves on Thursday.

"Some employees, including those who work within the IT department but don't hold technical positions, may be offered jobs elsewhere within Disney or will be laid off, the company told workers," the paper reported. "Others may be hired by ACS or IBM on a short-term basis, ranging from 90 days to 12 months, at which time they would be eligible for a severance package depending on their length of employment."

A Disney HR representative described the action as an "employee transition" and not a massive layoff. The media company hasn't confirmed that IBM and ACS will pick up the workers but did say that "two outside domestic vendors" will get new business from Team Rodent. So it looks like the Orlando Sentinel is pretty spot on.
Sunday, May 22, 2005

Outsourcing India

Tuition outsourcing, the next wave

New Delhi/Chennai: Skilled manpower in India is a major attraction for foreign entrepreneurs to set up operations. Now, Indian entrepreneurs are latching on to the very people who give India its skilled manpower - namely, skilled teachers.

Tuitions outsourcing is an opportunity that beckons India. Several countries are turning to providers who directly, or through their Indian arm, employ teachers for tutoring through the Internet.

And it's not a small ripple. Analysts estimate the market for tutoring for competitive examinations in the US at $20 billion, while the education market itself is pegged at about $800 billion.

"Various education processes are being outsourced within the US," said Satya Narayanan R, Chairman of education service provider Career Launcher. These typically include curriculum design, academic pedagogy, content development and actual delivery.

The US, which has always been at the forefront of innovation, is likely to be the biggest consumer of these services.

"The US President, George Bush's main plank has been the No-Child-Left-Behind plan. The goals for this set by the administration is directly linked to outsourcing of education services to private entities within the US. As they are hard pressed to generate resources to deliver on the promise, one may see a massive thrust on outsourcing outside the US, over the next 12-18 months," Narayanan said.

The billing rate for a US education service provider (ESP) is about $25 an hour, while in India it is $12. Considering that the cost to Indian service providers is only about $8-9 an hour, there is a whopping 22-25 per cent margin for the Indian players.

For Career Launcher, the focus areas in the US are law school entrance examinations and the GRE. It also provides tutorial services in mathematics and science for students of grade 8 and 9. It has 10 tutors for the US market and plans to scale this to 20-25 by the year-end.

The delivery model is user-friendly. Students are allotted windows that they log into at scheduled timings. Both the teacher and the student view the same screen and communicate with each other.

A Chennai-based company, which did not wish to be named, said there were opportunities outside the US too. It sees business potential in coaching candidates appearing for IIT JEE.

"Indian immigrants know the value of education at IIT and would like extra coaching for their children for IIT entrance exam," it said.

The company has developed a module for its teachers to learn the nuances of English, while communicating with students overseas.

"These modules can also be resold to students within India," it said.

The chief of the company said the average age of its tutors is below 25. Its staff strength is around 150.

West Asia, the US, the UK and countries to the east of India are all potential markets, she said.
Saturday, May 21, 2005

Outsourcing web solution

Financial Services Outsource Web Development Services Instead of buying Software
With Jake Rohn, executive vice president of corporate development at Albridge Solutions, and Stuart Tarmy, the company's vice president of marketing. Albridge Solutions provides enterprise data consolidation and Web-based portfolio accounting and performance reporting solutions to the financial services industry.
Question: The financial services market has been slowly moving more toward using Web-based applications over software. What exactly are companies outsourcing through Web-based solutions, and what are the advantages of outsourcing Web-based solutions over buying software?
Rohn and Tarmy: Financial institutions are outsourcing a wide variety of application and data services across their technology platforms. This is being driven by the growing realization that Web-based applications are simpler to run (data updates can be applied by the host rather than the user), simpler to maintain (upgrades and bug fixes can be applied instantly without users applying new software), easier to access (anywhere with public Internet access), and not prone to personal computer problems. Most importantly, because Web-based solutions are more efficient to build and maintain on a total cost basis, it is more economical.

Question: What issues are financial services firms having with making the switch from software to outsourcing Web-based applications?
Rohn and Tarmy: Among the most prominent concerns are data migration, integration, replication and storage. Migrating to a new solution means that a significant data transfer project must be productively completed first. Successfully integrating data throughout an enterprise is critical to ensuring a seamless transition that enables a firm to maximize its investment and utilize the data more efficiently. As such, it is vital to find a partner that is experienced in managing these transitions and also has a strong commitment to ongoing investment in customer support and technology enhancements.

Question: Albridge Solutions has recently confirmed a number of partnerships that allow it to continue to ramp up its Web-application offerings to financial services companies. What trends do you plan to focus on to remain a top vendor in the financial services Web-application field?
Rohn and Tarmy: Performance reporting is gaining momentum as something that was once a value-added service, but is becoming a competitive "must have" that regulators will increasingly focus more attention on to provide improved transparency to investors. Also, heavily influencing our development strategy is the need for Web services and data replication to drive compliance needs, cross selling and the "virtual office," where an advisor can easily access their portfolio accounting, performance reporting, financial planning and analysis, and CRM solutions on their computer.
Friday, May 20, 2005

Offshore software business growth

The Indian Outsourcing giant Wipro has announced reenue of $378 million for the quarter ending 31st March. This quarter result is 31 percent up over last year. Total net income has also increased to $102 million which is up from $74.3 million last year. Wipro was started in Banglore and currently has head-office in US. Its full year revenue reached $1.87 billion which is a rise of 39% compared to last year and net profit for full year increased to $363 million which is 58% higher compared to last year.

Mr. Azim Premji of said : "Considering the emerging opportunities in the Global market and our unique business model, the future outlook looks as exciting as the journey has been so far." Company also mentioned that, its outlook for the next quarter is positive and revenue will see rise of 5%. Although, company faces some challenges now a days including managing salary bills, higher man power turnover rate and stronger performance of Rupee against dollar. Also, company facing stiff competition in offshore outsourcing market.
Friday, May 20, 2005

Outsourcing to India

The technology lead prized by the US, Europe and Japan could come back to haunt the regions as nations such as India and China progress without the shackles of old fashioned hardware and software, according to Sun Microsystems President Jonathan Schwartz.

"My view is that (India and China) don't have to deal with all the legacy systems that Western Europe, the US and Japan do," Schwartz said in an interview with The Register. "There are no mainframes. Microsoft Exchange doesn't have the same presence in the IT landscape. Windows isn't nearly no entrenched."

Developed nations must spend an excessive amount of time focused on reworking old systems to work on modern computing tasks. In addition, customers are hampered by a lack of innovation - the result of bloated, lethargic companies that own huge markets such as the mainframe, desktop or browser, Schwartz said.

As a result, India and China could well dominate something Schwartz sees as the next-wave of computing, which is a scenario that takes millions of networked devices, high bandwidth and web services for granted. While the US is busy paying cheap coders to fix PeopleSoft applications, savvy folks in India could be plowing ahead on a fresh infrastructure.

Schwartz admits that this forecast may well be thwarted by innovation here and in other established IT regions. Still, Sun Microsystems has decided to up its presence in India and China to make sure it understands the business and technology climates in these burgeoning markets.

"You can't huddle in Mountain View and expect to be able to understand the market in China," Schwartz said. "You have to be there."

Sun employes between 6,000 and 7,000 software developers in 28 countries. It has just under 1,000 of these staffers in Bangalore and about 500 in Beijing.

Like many major IT vendors, Sun has faced a backlash for its use of offshore software labor.

"One moment, we are subject to a reduction in force (RIF) in order to cut costs, and before that exercise is even complete, Sun are saying that they need more people in China," a former Sun employee wrote to The Register, adding that he found such actions "insulting."

Sun has gotten off lighter than companies such as HP and IBM in the pubic offshoring/outsourcing debate. This, however, could change as the onetime high-flyer struggles to keep staffers happy and, er, employed. Schwartz, however, isn't apologetic about Sun's decisions.

"We have been doing this for 200 years," he said. "We go around the world and try to identify pools of talent. You have to ask yourself if you're a global company then what is offshore.

"I am just as worried about the morale of my employees in Beijing or Bangalore as I am about the ones in Mountain View. The luddite view is that they are just a great source of cheap labor. This is about creating services and businesses in those economies."

An effective partnership Sun has already managed to form in China comes via its relationship with networking firm Huawei. Sun has found that the margins on some of the networking gear are much higher than low-end servers. And, in fact, Sun is hiring more support staff in China just to manage its Huawei sales.

Where the rest of us dream of sugarplum fairies, Schwartz tends to get lost in visions of device-rich networks and dancing web services. It's a sickness that consumes many Sun executives as they try to own a chunk of the next big computing buy. It's this mentality that makes Sun staffers talk in such flowery language about a "networked India" or "web service-centric China."

Will the next Google or Napster or come out of Beijing while US staffers are busy installing the latest Windows Service Pack? Probably not in the near future. But we'll chat again in ten years.
Thursday, May 19, 2005

Offshore software development business

Business Process Outsourcing: The Vendor's Perspective

Applying technology to business improvement

Most businesses are under intense pressure to cut costs, cut resources, cut headcount and improve their use of capital. Although these short-term goals can be achieved through software outsourcing, they should not be pursued in isolation. Economic theory and history both show that when an industry embarks on this kind of cost reduction, individual firms always end up in the same place: The market eventually equalizes, but with a lower price for everyone.

Long-term competitive advantage is more affected by the now systemic and aggressive reduction in what economists call transaction costs. From the 1960s to the 1990s, organizations drove down production costs to the extent that blue-collar productivity increased 40-fold in Western economies. However, over the same period, transaction costs, and therefore white-collar costs, varied by only two percent. This massive difference was partly because the technology was focused on automation and basic accountancy; and partly because we had a lot to learn about how to apply technology to business improvement.

Today’s technology — pervasive computing, the Internet, mobile technologies and business process management — is geared to driving down transaction costs. Two things will emerge. One is the same kind of 40-fold improvement in white-collar productivity that we saw in blue-collar productivity; the other is that businesses will disaggregate where it costs less to perform an activity outside the organization than inside it. So if a 40- to 50-fold improvement in transaction costs occurs, we should expect to see new kinds of organizations, and all the assumptions that we make currently about industry configuration, company organization and achievable levels of productivity will change radically.

Managing at the level of business processes

We are already beginning to see a move toward looser, more disaggregated organizational structures. As transaction costs fall further, more companies are becoming capability-based organizations. This new form of disaggregation suggests that as transaction costs become sufficiently low, organizations can afford to be world-class at everything.

For activities at which it is world-class but not profitable, a business should look for partners; and for activities at which it cannot be world-class, it should devise a sourcing strategy. The choice is no longer a stark one between insourcing and outsourcing, but involves weaving a much smarter strategy about what should be done internally, and what should be sold — outsourcing, partnering, and in some cases, monetizing assets.

The skills that are required to manage disaggregated organizations go way beyond today’s concepts of vendor and partner management. Aggregation and orchestration must be undertaken at the process level, and management must cover process collaboration and process synergies, which is a much more sophisticated requirement than simple vendor management.

To buyers, it would appear there is a wide choice of solutions. However, there are two considerations to take into account. The first is that, even if this market grows as fast as predicted, it is not a single, monolithic, distinguishable market like ITO. BPO, for all the processes on offer, represents probably 20 to 30 immature markets.

The second consideration has to do with critical employees. In ITO the service provider can replace just about any employee without affecting the service. This is not the case in BPO because processes are never fully documented or fully automated. They consist of a mish-mash of automated, semi-automated and manual processes with workarounds and fixes, because nobody knows how to do them any other way. The people who know how the processes really work are important. Their knowledge cannot be uncovered by due diligence as it can be for ITO. Potential BPO clients must not undersell their knowledge of their processes.

Knowing your business processes
True process outsourcing and true process transformation demand a level of industry knowledge and domain skills that make it extraordinarily unlikely that, at least under the current model, the equivalent of IBM, CSC or EDS in the ITO market is going to materialize in BPO. Disaggregation and BPO are going to mean managing 30, 40 or even 50 providers of business process services, and processes will span many organizations.

The issue is not one of management, because no organization can manage 40 of anything, but is about aggregation and orchestration. Outsourcing to different vendors complicates the realization of synergy. Once organizations have outsourced six processes to six companies, how do they exploit the synergies?

A potential solution is emerging in the form of an Enterprise Process Repository. This enables both customers and vendors to understand the current state and the planned future state of all processes, so that they can identify synergies, collaboration opportunities and consequential opportunities. Once customers have that plan, they can source more intelligently and vendors can understand the potential for the future.

Different deals, different approaches

Because continuous fundamental change and innovation are crucial to successful BPO, BPO deals cannot be handled in the same way as ITO deals. The approach is different, the outcomes are different and the value drivers are different — so don’t treat them the same. Every ITO deal that we have witnessed has featured heated debate about who controls architecture, who controls strategy and who decides if the vendor should buy from Dell or HP; but none of this actually affects the success of the deal.

BPM as the enabler of BPO

If vendors are to offer BPO at anything approaching world-class level, they need outsourcing “science.” Vendors should be more interested in business process management (BPM), which gives them a method for managing collaborative processes and a method for managing processes across multiple clients and multiple enterprises. BPO is impossible without a method for intelligently aggregating, orchestrating and controlling processes. Thus BPM is the enabler of BPO.

BPM enables the process outsourcer and process aggregator to discover, design, deploy, execute and redesign business processes. Running processes that were designed for single company operation and getting economies of scale and scope across multiple clients is a nontrivial task. BPO vendors need to demonstrate mastery of complex program management, including the ability to manage people, behavioral and cultural issues. If vendors do not understand change management and behavioral management, they should not be offering BPO.

BPM and BPO should be key parts of every business’ sourcing strategy. The strategy should recognize that successful BPO requires a very different approach to ITO and facilities management. BPO is about continuous innovation, collaboration, iteration and co-creation. It needs a process aggregator. Smart vendors should be working on exactly how they will fulfill that role.
Wednesday, May 18, 2005

Offshore outsourcing

A government report will be published soon with in-depth analysis on kind of IT work less likely to be offshored. Kind of work which is less likely to be offshored can include :
- large-scale system-integration projects
- highly iterative development processes
- work that crosses multiple disciplines
- work that requires a high degree of interaction with end-users or clients
- applications with complex procedures, such as those that require frequent manual intervention and data fixes
- Projects requiring high degree of integration with onshore operations
- Work requiring deep cultural understanding
- work with much of the knowledge exists only in the minds of onshore IT staff
- Projects that require a high level of creativity, insight, innovation, and thinking outside of the box
- Jobs requiring process design and business analysis, technology and systems integration, and infusion of industry knowledge with a high level of IT skill

Most of the above points have in common is, they involve creating innovation, making nonroutine decisions and fusion of business process with IT. Report is created in close agreement with Mahoney, Gartner chief of research for IT service. He has predicted that, by 2010, large organizations will employ half of the number of poeple compare to 2000. And 50% of the jobs large organizations will outsource to external providers will be filled by providers in same geographic region.
Wednesday, May 18, 2005

Offshore outsourcing


Outsourcing FX is No New Trend for Banks

While today's competitive financial market demands that banks respond to market needs quickly and efficiently, there was a time when only the largest money centers could afford to offer foreign exchange (FX) services. Technological advancements have made a foreign exchange product line accessible to banks of all sizes. However, in today's economy, banks have to consider the feasibility of offering foreign exchange products and services. As a fee-based product offering, foreign exchange services can enhance a bank's revenue stream while meeting a market need. Yet, the costs for creating a FX processing environment can be enormous. It is for this reason that foreign exchange is an area that numerous banks outsource to correspondent banks or non-bank providers in order to compete in today's financial market. Outsourcing FX products and services allows banks to offer an advanced technology solution, industry expertise and superior customer service without the cost of back office investments. Art Gillis, principal of Computer Based Solutions, Inc. in Dallas, Texas, reported, "About 43 percent of America's 9,355 banks and thrifts currently outsource some of their operations."

When choosing an outsourcing solution, banks should focus on the services that will allow them to keep overhead costs to a minimum yet enable them to focus on business development opportunities.

Top 10 Reasons to Outsource FX:

Increase revenue and profits derived from fee-based services
Improve operational efficiencies and productivity levels by automating administrative tasks
Deliver value to customers to enhance business relationships
Expand service lines to capture more business from existing customers
Achieve more competitive exchange rates through wholesale purchasing
Control costs. If cash is not tied up in capital expense, it can be reinvested in areas offering the greatest return on investment.
Leverage the Internet to streamline and automate products, services and processing of transactions
Acquire industry expertise and expedite market entry
Enhance the ability to manage the rate spread on transactions
Enhance account management through real-time management reports on the purchase and sales of foreign currencies and the income generated from each product.

10 Questions to Ask When Evaluating a Foreign Exchange Online System
1. Is the system networked from the parent bank to branch banks?

2.Does the system provide flexibility for your bank to share revenue with the provider or to mark up rates and still have the ability to remain competitive?

3.Is the system integrated seamlessly with your bank's other systems?

4.Does the system allow your bank to retain control over profit margins, processes and account management procedures?

5.Can the bank re-brand the system for its bank and subsidiaries?

6.What capabilities are available to store, track, and send your customers information?

7.How are investigations handled?

8.What are the security features?

9.Can your bank create a centralized or decentralized process for managing its foreign exchange transactions?

10.Does the system enable your bank to provide customers real-time market information?

Choosing The Right Financial Institution
The notion of giving an outsider access to highly sensitive information can initially stir reluctance among banks. Banks often evaluate the competitive threat a correspondent bank provider poses when outsourcing because they often have access to a customer's confidential banking information. Therefore, companies must carefully assess the offerings, experience, credibility and demonstrated capabilities of potential bank and non-bank service providers.

Banks have numerous choices and an effective solution needs to do more than address current business functions. They should evolve as new technology evolves and business objectives develop over time. Here are a few criteria to keep in mind when choosing a provider.

Check the financial strength of the provider.
The financial health of your provider is critical. Established providers with a history of profitability are the safest bet, particularly if the provider is less than two years old.

Check the provider's record of success. Ask prospective providers to furnish you with a representative sampling of their customer base and speak with customer references.

Establish whether the financial institution has a clearly defined account management plan.

Account management is a critical factor in the outsourcing relationship. Some of the questions you should ask include: 1) Will a single account manager serve as your point of contact on all of the details of your account; 2) Will you be able to meet with that person often, and 3) Will you meet with your future account manager and other support staff before the relationship begins?

What security measures does the financial institution have in place and have they been tested?
You should settle for no less than a detailed outline of the security measures that protect a provider's facility from outside intrusion. Ask about the types of firewalls and related programs a provider uses and ask if they have experienced security problems. Find out what recovery plans are in place in case there is a security breach. Also pay close attention to the potential threat of internal security violations.

Make sure the financial institution offers a training plan and continued support.
Make sure the service provider offers formal training for systems and technology and how to use it efficiently.

Explore in-depth the quality of the financial institution infrastructure and the personnel charged with managing it.
Find out who its technology component partners and Internet backbone providers are. What are the key metrics, including reliability, availability, and scalability? An on site inspection is mandatory in establishing your confidence in both the provider's physical infrastructure and its management expertise. Ask about current and planned investments in infrastructure. You want to ensure that you benefit from continued upgrades and new technologies.

How are services priced?

Make sure you know what you are buying. You should also get a clear idea of how pricing will change as your needs scale up or down over time. Ask if the provider's pricing practices are flexible or rigidly set.


Numerous banks face the following dilemma: 1) Have a critical process whose usage is falling but will never go away. 2) Need significant investment in new technology in order to compete. 3) Faced with making the decision to spend money on technology investments or outsource a core process.

Today, approximately 95% of medium sized and community banks in the US outsource foreign exchange services to financial institutions. And the majority of banks in the US outsource processing for a variety of bank services. Many have learned that it's best to give the process to someone who specializes in it. After all, it's the provider not the customer, that's making the resource investment. The provider is also assuming the responsibility for managing these resources and for much of the business risk inherent in doing it well.

Whether businesses embraced the potential of e-business or not, they found that the new technology in the hands of their suppliers, customers and competitors compressed business cycles. Some companies struggle to keep up with the rapid rate of technological changes. By outsourcing, a company can benefit from technology's cutting edge without large capital expenditures.

Outsourcing and enabling a provider that specializes in a service to manage resources allows the bank to not only focus on its core competencies but also increase its bottom line. If operating costs are reduced, it's because of the specialized knowledge and economies of scale of the provider's resources. If capital costs are reduced, it's because the provider is making those capital investments, not the bank. Similarly, when speed and flexibility are enhanced, it is because it's faster and less expensive to leverage another firm's existing resources than it is to build one's own from scratch. When outsourcing is credited for focusing the business on its core, it is specifically because the bank will now be able to invest more of its internal resources in those areas where its unique capabilities produce exceptional returns.

It is imperative to choose a service provider that can put all the pieces together, regardless of how complicated the tools and processes become. Ultimately, by developing the necessary tools and processes into a comprehensive, fully integrated solution that fits together seamlessly, the bottom line will benefit and your bank will remain competitive in the 21st century.
Tuesday, May 17, 2005

Offshore Development India

Outsourcing IT Development: Advantages

You can outsource almost anything. Maybe you don't know it yet, but it's true. A couple of days ago, when I was drinking coffee in the kitchen, my wife pointed at the faucet that was leaking big time. The good ole faucet was there when we moved in about ten years ago, and trying to fix it again didn't make sense any more. Since I religiously believe in DIY, I bought a new faucet and set about working. When the old faucet was gone, I found out the metal pipe under the sink had to be replaced, too. There was no way I could do it without recourse to welding. I realized I was ready to outsource that part of the project, so I called the plumber.

IT development outsourcing isn't much different than any other kind of outsourcing. When you face an insistent need to start a new IT development project, you have to weigh your current in-house capacity first. If your experience and budget allow you to cope with the task without resorting to any outside expertise, you should probably take full advantage of your potential and do it yourself. However, if there's danger that you'll bite off more than you can chew, it's about time to consider the advantages of outsourcing.

Basically, outsource service providers offer you higher quality services at a lower cost. This makes the advantages of IT development outsourcing obvious, so let's have a look at just a few of them.

Outsourcing IT development is a most effective way to stretch your budget. When managers plan IT development outsourcing, they usually make it their aim to cut down the company's expenditures by 30%. This is a figure that speaks for itself. Of course, there's always the risk of failure, but if you outsource prudently, you'll afford to implement projects of such a scale that would be impossible for you to reach on your own.

If you need to have state-of-the-art IT solutions worked out and innovations implemented with small losses, outsourcing may be the only way out. It will save you from the nightmare of retraining your employees (or even hiring new ones) and/or paying for re-equipment.

Cutting your costs and upgrading the quality of the services you offer will allow you to expand the competitive capacity of your business. I suppose the state the IT market is in today makes this simple argument a crucial one.

When you outsource IT development to an outside company, you can concentrate on your core activities. You won't be able to completely forget all about the project or its part that you have chosen to outsource as soon as you sign a contract with an outsource service provider, but you won't have to get scattered, either.

If you deal with an experienced and highly qualified vendor, you'll be able to gain valuable expertise in support of your IT capacity. Almost any vendor will surely try to set a dependency trap for you, but it doesn't mean you have to acquire the dependency pattern instead of learning everything you can derive from the vendor's expertise.

Tuesday, May 17, 2005

Survival Strategies: The BPO route

In a sluggish economy, Indian IT companies played it smart and quickly capitalised on the scotching pace of growth offered by ITES. In the earlier issue of Tattler, had argued that ITES is not IT. ITES players cover a wide range of multiple verticals, constituting banking and insurance telecom, retailing, utilities back roll processing are poised for immense growth. This has little in common with traditional IT constituting software development, testing and maintainance. Dismayed industry observers are crying foul, over the industry's shifting focus from high end products and services. But for IT service companies, whose growth rates were painfully crunched by the downturn; ITES offered a humongous growth opportunity too good to be bypassed. Consider these factoids.

ITES grew at a rate of 73 per cent in 2001-02, as against 14 per cent for the overall IT industry.
The ITES industry is expected to grow to Rs. 81,000 crore in 2008; from Rs. 7,100 crore in 2001-02. The sector is expected to contribute 37 per cent of total software and services exports in 2000.
Forex inflows will increased ten-fold from $6.2 billion in 2001-02 to $60.72 in 2008 (IT plus ITES)
World-class IT infrastructure, idle capacity, flat growth, pricing pressures, tight squeeze on IT budgets and declining profits have accelerated beleaguered IT sector's pace towards ITES. In the last six months, Indian service icons have announced their BPO foray to shore up margins and improve top line growth. Wipro acquired a majority stake in Spectramind, Infosys launched Progeon, Satyam ventured into the BPO space with Nipun, HCL launched E-Serv, Polaris floated Optimus to execute back office operations and Hughes also made a departure from its positioning of high value-added R&D work in the Telecom sector to debut in the BPO space. Certainly considering the success of BFL Mphasis, the strategy appears to be paying at least in the short term. MsourcE, the company's BPO arm was the main driver of growth and pulled in Rs 14.5 crore in revenue and a profit of Rs 2.2 crore. Though the software business remained flat, Mphasis delivered another quarter of growth when most companies registered a decline in quarterly profits. Lessons from the Mphasis story are now being emulated across companies.

Indian IT companies are capitalising on the track record in delivering world class services to global icons and established SEICMM level processes to bag orders. Infosys' one quarter old BPM venture Progeon Limited, has bagged a contract worth approximately $30 million from GreenPoint Mortgage, one of the largest US wholesale mortgage lender. The contract, the second for Progeon, will run through five years. Indian companies are also tapping established marketing networks, as they provide an opportunity for strategic cross selling between the IT and IT enabled businesses. For instance GreenPoint was already an Infosys client before Progeon bagged the order. And pre-established relationships from the IT services era are helping companies to reduce sales cycles in their ITES ventures from 6-9 months to three months. MsourcE, the BPO venture of MphasiS-BFL Ltd currently has 10 active clients, five of whom were MphasiS clients and outsourced work to MsourcE based on their earlier interaction. Two MsourcE clients also became MphasiS clients after they began outsourcing IT projects. Kshema Technologies is another company gearing up for its BPO venture to focus on requirements of existing clients.

The long-term impact of the strategy to move to low-end services is debatable. In a recent report, Gartner compared the ITES scramble to the dotcom boom but later withdrew the report. According to the report the size of the ITES opportunity is grossly overestimated.

"A lot of people are touting the entire global BPO market of $127 billion in 2002 as the potential market for Indian BPO companies. Of this $127 billion, 60 per cent is in the US. As of now the trend for BPO going offshore is evident primarily in the US and of the companies in the US that we surveyed only 5 per cent said they were going offshore for their BPO work. So we estimate that the offshore opportunity that Indian companies can tap into is about $6 billion, and Indian companies are competing for this business with near-shore companies in countries like Mexico and Canada, and offshore companies in the Philippines and Ireland." The report was later withdrawn but many are questioning the hype around IT.

However the Indian IT industry influenced by global market trends is loathe to let go the short term benefits and healthy profits offered by ITES. Also companies such as Spectramind are making strong attempts to expand the scope of services offered by entering the high-end BPM segment. Spectramind is setting a knowledge center for one of its clients and hiring Ph.Ds. If IT companies are to pull it off in the long term, they must quickly ramp up the BPO chain.
Friday, May 13, 2005

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:[]
Friday, May 13, 2005

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
Friday, May 13, 2005

Wipro enters into consulting business

One of the India's software outsourcing company 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.
Friday, May 13, 2005

offshore outsourcing boom

Offshore outsourcing company should 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.
Friday, May 13, 2005

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 threat My 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 Development, 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.

Thursday, May 12, 2005

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:[]
Thursday, May 12, 2005


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 SupportFor 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 PortfoliosSoftware 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.
Thursday, May 12, 2005

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.
Monday, May 09, 2005

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.

Monday, May 09, 2005

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 outsourcing 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
Saturday, May 07, 2005

Offshore software outsourcing improves production by 25%

Jobs in United states, in manufacturing and other sectors, will continue to be moved to India and other countries as foreign workers work more at low cost than their american counterparts, which increases production of the business processes outsourced by up to 25 per cent, a new research has said.

The trend of sending higher-paying jobs offshore would continue and a key reason is lack of appropriate skills in the United States, according to a survey by the Earth Institute at Columbia University.

Of the 45 companies surveyed, a majority said after they shipped work abroad the quality of the product improved. They also said foreign workers have better skills than Americans and put more efforts.

The companies represented a broad cross-section of industry, from automotive and banking to government, healthcare, financial and computer services.

The institute said 82 per cent of the companies currently outsource jobs, and 70 per cent said production of the business processes they outsourced abroad was up 5 to 25 per cent. Sixty-two per cent were looking to outsource business processes and software outsourcing to countries other than India, the report said.

"Companies, including offshore pioneers such as General Electric, Nortel Networks and Citibank, found that actual cost savings, which remain the primary reason for outsourcing, were achieved by 67 per cent of the companies to the tune of 5 to 50 per cent," said the report.

"The main downside to outsourcing perceived by American businesses is loss of institutional knowledge, data security, loss of intellectual property rights, and political risks," the report added.
Saturday, May 07, 2005

Security Software Outsource

Deciding to outsource network security is difficult. The stakes are high, so it's no wonder that paralysis is a common reaction when contemplating whether to outsource or not:
The promised benefits of outsourced security are so attractive. The potential to significantly increase network security without hiring half a dozen people or spending a fortune is impossible to ignore.
The potential risks of software outsourcing are considerable. Stories of managed security companies going out of business, and bad experiences with outsourcing other areas of IT, show that selecting the wrong outsourcer can be a costly mistake.
If deciding whether to outsource security is difficult, deciding what to outsource and to whom seems impossible. Over the past few years, we've seen many different companies offering different capabilities under the general category of “managed security services.” The field is so confusing that even the industry analysts can't agree on how to categorize the services offered. This company manages firewalls. That company offers periodic vulnerability scans. Another offers to manage security policies, or monitor the network, or install the IDS, or host the computers. Some of these businesses make sense, and some of them don't. Some will survive; some won't.
What to outsourceCompanies won't outsource everything, because some things just don't outsource well. Either they're too close to the business, or they're too expensive for an outsourcing company to deliver efficiently, or they simply don't scale well. Knowing what to outsource is key.
Medical care is a prime example of outsourcing that works well. Everyone outsources healthcare; we don't act as our own doctor. More to the point, no one hires a private personal doctor. And we all know what aspects of medical care we like: the ambulance arrives in seconds and rushes us to the hospital, a team of medical experts spares no expense in running tests to figure out what's wrong and in doing whatever it takes to cure us, and (for many people) the insurance company pays (all or most of) the bill. We all also know what aspects we don't like: ill-equipped and ill-staffed hospitals, HMOs telling us that we can't have that particular test or that a specialist isn't warranted, and getting stuck with an outrageous bill.
The aspects of outsourced healthcare we like involve immediate access to experts. Any medical emergency requires experts, and the faster they can pay attention to us the better off we'll be. The aspects of outsourced healthcare we don't like involve management. Our healthcare is our responsibility, and we don't want someone else making life and death decisions about us.
Network security is no different. Companies should outsource expert assistance: vulnerability scanning, monitoring, consulting, and forensics, for example. But they should not outsource management.
The industry has already proven this point. Salinas Network Services was the largest firewall management company. Earlier this year, it disappeared. There just wasn't a profitable business in managing firewalls for other companies. Firewall management is simply too central—companies outsourcing to Salinas had no choice but to treat their Salinas contractors as employees. And, for the money they were willing to pay, the companies demanded too much individual attention. Another example: Pilot Network Services offered secure network management. Its business was to host computers securely, manage all security devices, and test applications before putting them up on the network, effectively becoming the security management group. They're gone now too—same problem.
Some consulting companies are doing well and some are not. This is primarily a function of the quality of the service they offer. Consulting is, and always will be, a profitable business. Outsourcing occasional requirements for expertise transcends any single area. The outsourced security companies that are doing well offer clearly defined services organizations need. For example:
Consulting companies (such as VeriSign, @Stake, Foundstone) provide expert advice and assistance: strategic security consulting, penetration testing, forensics, and so forth. Security Value-Added Resellers (VARs) provide product installation and configuration. TruSecure provides certification and expert assistance. Qualsys has an automatic vulnerability scanning service. Counterpane provides network security monitoring. In all of these cases, the company buying the security services retains management and ultimate control. Conversely, by not demanding a management role, the security providers offer useful, effective, and scalable services. Both win.
Why outsource securityThe primary argument for outsourcing is financial: a company can get the security expertise it needs much more cheaply by hiring someone else to provide it. Take monitoring, for example. The key to successful security monitoring is vigilance: attacks can happen at any time of the day, any day of the year. While it is possible for companies to build detection and response services for their own networks, it's rarely cost-effective.
Staffing for security expertise 24 hours a day, 365 days a year, requires five full-time employees—more when you include supervisors and backup personnel with specialized skills. Even if an organization could find the budget for all of these people, it would be very difficult to hire them in today's job market.
Retaining them would be even harder. Security monitoring is inherently erratic: six weeks of boredom followed by eight hours of panic, then seven weeks of boredom followed by six hours of panic. Attacks against a single organization don't happen often enough to keep a team of this caliber engaged and interested.
This is why outsourcing is the only cost-effective way to satisfy the requirements. Think about healthcare again. I might only need a doctor twice in the coming year, but when I need one I might need him immediately, and I might need specialists. Out of a hundred possible specialties, I might need two of them—and I have no idea beforehand which ones. I would never consider hiring a team of doctors to wait around until I happen to get sick. I outsource my medical needs to my clinic, my emergency room, my hospital. Similarly, companies will outsource network security monitoring.
Aside from the aggregation of expertise, an outsourced monitoring service has other economies of scale. It can more easily hire and train personnel, simply because it needs more employees. And it can build an infrastructure to support them. Vigilant monitoring means keeping up to date on new vulnerabilities, new hacker tools, new security products, and new software releases. Outsourced security companies can spread these costs across all customers.
An outsourcing company also has a much broader view of the Internet. It can learn from attacks against one customer, and use that knowledge to protect all its customers. It also faces attacks much more frequently. No matter how wealthy we are, we don't hire a doctor to sit in our living room, waiting for us to get sick. We get better medical care from a doctor who sees patient after patient, learning from each one. To an outsource security company, network attacks are everyday occurrences; its experts know exactly how to respond to any given attack, because in all likelihood they have already seen it many times before.
How to choose an outsourcerIt is difficult to choose an outsourcer because it's hard to tell the difference between good and bad computer security. By the same token, it's hard to tell the difference between good and bad medical care. Because most of us aren't healthcare experts, we can sometimes be led astray by bad doctors who appear to be good. So how do we choose a doctor or a hospital? I choose one by asking around, getting recommendations, and going with the best I can find. Medical care involves trust; I need to be able to trust my doctor.
Security outsourcing is no different; companies should choose an outsourcer they trust. Talking with others and asking industry analysts will reveal the best security service providers. Go with the industry leader. In both security and medical care, you don't want a little-known maverick.

Companies buying security services should also avoid outsourcers that have conflicts of interest. Some outsourcers offer security management and monitoring. This worries me. If the outsourcer finds a security problem with my network, will the company tell me or try to fix it quietly? Companies that both sell and manage security products have the same conflict of interest. Consulting companies that offer periodic vulnerability scans, or network monitoring, have a different conflict of interest: they see the managed services as a way to sell consulting services. (There's a reason companies hire outside auditors: it keeps everyone honest.) Outsourcers offering combined management and monitoring services will be among the next to disappear, I believe. If a company outsources security device management, it is essential that it outsource its monitoring to a different company.
In any outsourcing decision requiring an ongoing relationship, the financial health of the outsourcer is critical. The last thing anyone wants is to embark on a long-term medical treatment plan only to have the hospital go out of business midstream. Similarly, organizations that entrusted their security management to Salinas and Pilot were left stranded when those companies went out of business.
Modern society is built around specialization; more tasks are outsourced today then ever before. We outsource fire and police services, government (that's what a representative democracy is), and food preparation. Businesses commonly outsource tax preparation, payroll, and cleaning services. Companies also outsource security: all buildings hire another company to put guards in their lobbies, and every bank hires another company to drive its money around town.

In general, we outsource things that have one of three characteristics: they're complex, important, or distasteful. Computer security is all three. Its distastefulness comes from the difficulty, the drudgery, and the 3 a.m. alarms. Its complexity comes out of the intricacies of modern networks, the rate at which threats change and attacks improve, and ever-evolving network services. Its importance comes from this fact of today's business world: companies have no choice but to open their networks to the Internet. Doctors and hospitals are the only way to get adequate medical care. Similarly, outsourcing is the only way to get adequate security for today's networks.
Friday, May 06, 2005

The States and Outsourcing

The emergence of John Kerry as frontrunner for the Democratic nomination suggests that free trade might be off the table in 2004, at least as a national issue. It's certain to come up, however, in a number of congressional, senatorial, and gubernatorial campaigns. And, of course, as long as Lou Dobbs is still kicking at CNN, we'll continue to hear nightly nativist tirades against the loss of manufacturing jobs, the off-shoring of tech jobs, immigration, and general alarmism about the "outsourcing of America."

The truth, of course, is a bit more complicated than the simplistic picture painted by protectionists. The United States is still far and away the world's leading exporter of services. Direct corporate investment in India -- generally the target of protectionist rants on tech jobs -- actually declined from 2001 to 2003. As for manufacturing jobs, sure, it's likely that free trade agreements played a part in the loss of jobs in the last five years, but so too did a host of other factors, including exchange rates, changing consumer preferences, upgrades in technology and equipment, the recession, and new federal regulations. Michigan's Mackinac Center for Public Policy, to cite just one example, estimated in 2002 that a federal appeals court ruling favoring procedural matters over hard science in federal environmental regulatory policy could cost the state as much as $2.6 billion, or about 10,000 jobs.

Which brings us to state policy. Time and again, when we look at the states attracting and retaining jobs, and we compare them to the states losing jobs, we find that the states doing well are those with tax and regulatory schemes most friendly to business. It's only when the cost of staying local becomes too burdensome that companies pick up and relocate elsewhere. Perhaps that's not surprising. But just how strongly the data shakes out might be.

For example, according to the Economic Policy Institute, the five states losing the most jobs between 1993 and 2000 were, in order, California, New York, Michigan, Texas and Ohio. According to figures from the Bureau of Labor Statistics, New Jersey, Pennsylvania, Illinois and Massachusetts also rank near the bottom, particularly when you take jobs as a percentage of population. The left-leaning EPI blames these losses chiefly on NAFTA, and perhaps that's partially the case. But aggressive tax and regulatory climates play a pretty big role, too.
Each year, CFO magazine asks financial executives to assess the business-friendliness of tax policy in their respective states, which the magazine then compiles and ranks. Ranking in the bottom 10? California, New York, Michigan, Texas, Ohio, New Jersey, Pennsylvania, Illinois and Massachusetts -- the very states that seem to be bleeding jobs. The most recent unemployment figures from the Labor Department put California, Texas, Ohio, Illinois, and Michigan all in the bottom 10 there, too, all with unemployment rates at 7.0 percent or higher.
The Small Business Survival Committee also puts out a report ranking the states on business-friendly public policy. In the SBSC report, Ohio ranks 39th, New York 45th and California 46th. Oregon, also with one of the country's highest unemployment rates, ranks 41st.

A 2003 ranking by the Tax Foundation focusing mainly on tax policy and business tells the same story. It puts California 49th, Ohio 47th, and New York 44th.

Only Texas and Michigan score relatively well on the Tax Foundation and SBSC reports, suggesting that at least in these two states, free trade may have played a more significant role in job loss than poor public policy (and when you think about what Michigan manufactures, and where Texas is located, that makes some sense).
The Cato Institute's Alan Reynolds wrote recently about San Jose, California, a city that lost about 120,000 jobs over two years. Reynolds points out that despite the debacle in San Jose, the communities of San Diego, Riverside, and Orange County actually added almost as many jobs over the same span of time.

San Jose was one of the first jurisdictions in the area to implement a so-called "living wage" ordinance, mandating that businesses contracting with the city pay their lowest-paid workers around $11 per hour, more than double the federal minimum wage. Of course, a living wage law in and of itself won't wipe out 120,000 tech jobs, but it's certainly indicative of the sort of "progressive" anti-corporate sentiment that might cause local businesses to pick up and spill out into friendlier communities.

Protectionists often bring up Ohio as the prototype of a hard-working, breadbasket state whose manufacturing sector has fallen victim to free trade. But Ohio is also a case study in how a state government hostile to business pushes jobs to more hospitable locales. You've read the numbers above. But additionally, in the last few years, Ohio legislators have begun to feel the hangover caused by big spending habits fomented back in the freewheeling 1990s. As of 2003, the state faced a $720 million deficit. Ohio governor Bob Taft has promised to shrink the deficit not with cuts in state spending, but with new taxes, tax hikes, and new fees, as well as rollbacks of promised tax breaks. Taft's tax-happy policy earned the Republican condemnation from the Club for Growth's Steve Moore, who called Taft one of the "worst governors in America."

The Buckeye Institute, an Ohio free market think tank, reports that Ohio's aggressive pro-labor policies cost the state jobs even during the relatively strong economic period of 1982-1998. Zeroing in on the effect of mandatory union memberships on state economies, the Institute emphasizes that during that 16-year period, states that mandated union membership in the manufacturing sector lost a net 996,000 jobs, while "right to work states" gained 493,000.

Let's look at the flip side. How well are states with business-friendly public policy doing at attracting and retaining jobs? The anecdotal evidence suggests they're doing pretty well.

According to the Bureau of Labor statistics, the only state that actually gained net manufacturing jobs from 2000 to 2003 was Nevada. It ranks 2nd on the SBSC's business-friendly list. It ranks 3rd on the Tax Foundation list. It ranks in the top four of CFO's list. Alaska lost only 900 manufacturing jobs over those same four years, which is likely due to its population. Still, Alaska too ranked in the top four on the CFO list. Virginia made a big push in the late 1990s to attract tech firms to its D.C. suburbs and the Dulles corridor. Despite the tech bust, Virginia still has one of the lowest state unemployment rates in the country and, perhaps not coincidentally, ranks 14th on the SBSC list (and would likely rank higher were it not for Gov. Mark Warner's recent promise to raise taxes). South Dakota, which ranks number one on the SBSC list, also has one of the four lowest unemployment rates in the country (as of December 2003).

On its face, this cursory look at the data makes a lot of sense. For all the talk of off-shoring, the cost of packing up a domestic plant and moving it overseas is pretty significant. Even outsourcing tech support and programming doesn't always make economic sense. American workers are still far more productive than, for example, Indian workers, even when you factor in the lower wages. It's only when the onus of complying with federal, state, and local tax laws and regulations becomes overly burdensome that it makes economic sense for a corporation to shop jurisdictions for a better deal.

So the next time a local politician (or news anchor) blasts NAFTA or greedy corporatism for the loss of local jobs, it might not hurt to take a look at just how friendly that politician's state or city taxes, regulatory and labor policies are toward business. Check where his state ranks on the Tax Foundation, SBSC or CFO lists. If he's a governor, see how he did on the Cato Institute's Governor's Report Card. If relocation really is the cause of the job hemorrhage he's complaining about (and often it isn't), it's likely that same politician's policies are a big reason those jobs left.

by Radley BalkoTechCentralStation
Friday, May 06, 2005

IT job turnaround could spell strategic change for outsourcing providers

The outsourcing sector has been one of a very few bright spots in the IT industry over the past two years, showing slow growth while the rest of the market continued a prolonged tailspin. New projections on IT employment, however, suggest that the tailspin might soon level off.

According to research published last week by the AEA, formerly known as the American Electronics Association, the free-fall of IT industry employment is finally slowing. After losing some 540,000 jobs between 2001 and 2002, the AEA projects that 2003 job losses will be around 234,000, approximately 57% fewer than the year before
What's more, AEA researchers are predicting that the IT industry is gearing up for a turnaround. There is a strong possibility that the sector will actually add jobs in the second half of 2004, they said.

The AEA's predictions are supported by other researchers. IDC is projecting that IT spending in the U.S. will increase 1.5% this year over last year to $372 billion. Over the next five years, spending is expected to increase at a slow compound annual growth rate of 4.9%, reaching $467 billion by 2007, the research firm said.

For outsourcing providers, the slowdown in IT job losses is both good news and bad news. The good news is that IT spending is slowly coming around, and that there will be more funds available for IT projects in the coming months, many of which will be out-tasked to third parties.

The bad news is that it may not be long before companies begin to staff up their internal IT organizations again. Thanks to the economic slump, there is a large pool of unemployed skills on the market, and enterprises that loosen their purse strings can expect to get top-flight talent at a reasonable price. Many of the skills offered by outsourcing providers can now be found on the wide-open employment market.

How will outsourcing providers respond to the resurgence in internal IT employment? Many will look for ways to hold onto current clients, either by renegotiating their terms or by building closer relationships with the IT departments they serve. If an enterprise is happy with its IT performance, and the way its operation works, it will be less likely to seek a return to an internally-staffed model.

Some outsourcing providers will look to re-establish their role as strategic consultants, rather than operational manpower. Before the downturn, many outsourcing providers were called in to help with transitional projects - consolidation of applications, deployment of new technology, or re-engineering of business processes - rather than substitute for internal operations staff. If the internal staffing problem becomes less of an issue, then outsourcing providers can move back to helping with strategic projects.

Finally, some outsourcing providers will look to provide a less expensive alternative to internal staffing. Much has been said recently about offshore IT outsourcing, and this trend is not likely to slow down. If outsourcing providers can deliver lower-cost IT services by shipping them overseas, then many enterprises will take advantage of them, possibly to the detriment of unemployed IT workers in the U.S.

Whatever the impact of the IT hiring turnaround, it is clear that the outsourcing market will look very different by the end of 2004 than it does today. The key for outsourcing providers will be to monitor the shift and respond in ways that will enable them to continue to grow, even as the internal IT organization grows.

Thursday, May 05, 2005

IT Outsourcing Market

IT Outsourcing Vendors Will Reap $7 Billion in the Next Two Years - Research Report Now Available
The US Enterprise IT Outsourcing Market will grow 20%, from $46.3B to $55.5B in the next two years according to a new research report published by the InterUnity Group. While the On-shore market will grow by 5%, the Off-shore market will grow 11 times faster at 55%. A total of $7.8B will be shifted Off-shore increasing the Off-shore total to $21.7B in 2005. Enterprises will shift $930 Million of this growth to wholly owned Off-shore subsidiaries.

Concord, MA December 17 2003-The US Enterprise IT Outsourcing Market will grow 20%, from $46.3B to $55.5B in the next two years (Figure 1) according to a new research report published by the InterUnity Group. While the On-shore market will grow by 5%, the Off-shore market will grow 11 times faster at 55% (Figure 2). A total of $7.8B will be shifted Off-shore increasing the Off-shore total to $21.7B in 2005. Enterprises will shift $930 Million of this growth to wholly owned Off-shore subsidiaries.

Overall outsourcing growth will slow from 13% in 2004 to 7% in 2005. The slowdown in IT outsourcing growth is due to rapid market penetration and saturation.

The market for On-shore outsourcing from companies that currently outsource will decline by $3B from 2003 to 2005. This will be off-set by $4.6B growth in On-shore outsourcing from companies that do not currently outsource. Combined net growth will be 5% in the domestic outsourcing market.

The $21.7B growth in Off-shore outsourcing will come from enterprises currently outsourcing in US migrating Off-shore (40%) and from enterprises that do not currently outsource (60%) but plan to in the next 24 months.
Not all of the growth in the Off-shore outsourcing market is available to vendors. About 12% of Off-shore outsourcing will be performed through captive subsidiaries. This $1.7B segment in 2003 will grow to $2.7B by 2005.

Enterprises currently outsourcing have determined their Off-shore outsourcing strategy:
40% do not plan to go Off-shore, 7% are watching the market and 11% have Off-shore trials under way.
Two-thirds of companies doing Off-shore outsourcing have a proactive cost saving focus and one-third have a proactive strategic focus. The combined growth in Off-shore outsourcing from this segment is just over $3.1B over the next two years.

The largest opportunity for Off-shore outsourcing vendors comes from companies who have not yet done any IT outsourcing. The combined growth in Off-shore outsourcing from this segment is $4.7B over the next two years.
Since two thirds of Off-shore outsourcing is driven by a proactive cost reduction, vendors who can demonstrate significant cost savings to their prospects will win two thirds of the growth. The remainder will go to vendors who can align with prospects strategic enterprise needs for specific skill sets and industry expertise.

Vendors who clearly differentiate their offerings have an opportunity to capture market share. Strategies include:
Develop high-probability target customer profiles to focus sales and marketing resources on organizations that are developing outsourcing plans Demonstrate realizable benefits and cost savings Develop solutions that solve business problems specific to industry verticals and company size.

To be successful longer term, US based outsourcers must ramp up their Off-shore delivery capabilities, either through alliances or captive Off-shore subsidiaries, to maintain market share.
Definition of the US Enterprise Market
The US Enterprise Market includes the following industries:
Mining Construction Manufacturing Transportation, communications, and utilities Wholesale trade Retail trade Finance, insurance, and real estate Services
Government, Education, and non-profit sectors are excluded.
This article courtesy of [] You may freely reprint this article on your website or in your newsletter provided this courtesy notice and the author name and URL remain intact.
Thursday, May 05, 2005

offshore outsourcing -HP and Intel hire Asian helpers to make Itanium cheap

What's the key to Itanium's future success? Cheap, Asian labor.

HP and Intel have decided to tap Asian server design and manufacturing teams to come up with a low-cost Itanium server. This approach, similar to that used for today's x86 servers, would bring the cost of a low-end Itanium server down from about $10,000 today to close to $4,000 in 2007.

"We are working with Intel to drive costs down," said Don Jenkins, HP's VP in charge of business critical systems, at the Intel Developer Forum event held here. "In the 2007 timeframe, we will be able to more actively play at edge of the network . . . places where you expect x86 servers."

HP and Intel plan to deliver a common chipset for Xeon and Itanium processors by 2007, which should help lower overall system costs. The plan mentioned by Jenkins extends beyond this, however. During a speech here, he said twice that HP and Intel had already started investing in Asian design houses that will be expected to create cheap Itanic kit.

Itanium's sluggish sales haven't dampened HP's enthusiasm for the chip. And how could they? HP "bet the company" on Intel's 64-bit product.

In the near term, Jenkins told the IDF crowd to expect a whole new fleet of Itanic boxes described as the "Arches" systems. The Arches code-name refers to HP's upcoming chipset for Itanium servers, which will support the PA-8900 processor and Intel's dual-core version of Itanium code-named Montecito due out by year end.
"We won't get all of the systems out the door in 2005, but we will get a fair chunk of the Montecito products out the door in 05," Jenkins said.

HP will also rollout a Itanium-based blade system in early 2006. This product will be aimed at HP-UX users, Jenkins said.

Jenkins, who has given a similar Itanium speech for many years, did a nice job of defending the chip against its painfully slow sales.

"It's fundamentally true that over the long-term x86 and Itanium will be the dominant architectures in the industry," Jenkins said. "We have a long way to go with Itanium. We know that. We are building it brick by brick."

By brick, by brick, by brick.
"Companies like SGI, Unisys and NEC are helping to make the market with Intel, and others will get involved over time," he added.

This statement would be more impressive if the vendors mentioned above had any Itanium sales of consequence. In the fourth quarter, SGI shipped 318 systems, Unisys shipped 46 and NEC shipped 75. Less than 500 boxes per quarter does not an ecosystem make.

Jenkins also lost some ground when he tried to explain why IBM's Power5 wasn't as powerful as it seemed to be. He looked at IBM's TPC-C score of more than 3m transactions - triple that of HP's best score - and noted that if IBM used 1.65GHz chips instead of 1.9GHz chips and didn't use DB2 for the benchmark, its score would have been 25 per cent lower. HP researchers also discovered that they could have beaten IBM on the benchmark had the Power5 box not been plugged in. ®
Thursday, May 05, 2005

Can they find a good employment line?

Of all people, George W. Bush, a son of a one-term President, should certainly understand the importance of getting the script and the staging just right when it comes to demonstrating how committed he is to helping Americans get and keep good jobs. The economy was improving on Election Day 1992, but voters could still recall images of George Herbert Walker Bush buying four pairs of socks at J.C. Penney the previous Christmas season and exhorting them to shop their way out of bad times. Or how, as he prepared to tee off at a Kennebunkport, Maine, golf course in the summer of 1991, the elder Bush declared the recession over and then blocked funding to extend unemployment benefits. Though people understand their President can't guarantee their jobs, they want to know that he's doing what he can and that, at a minimum, he's paying attention.

So this President Bush makes sure to plant himself as often as possible on the factory floor, surrounding himself with happy workers—as he did last week at a window-and-door factory in Tampa, Fla.—and touting the job-creating power of his tax cuts, even as he acknowledges that many people are still out of work.

But as hard as Bush tries to show that he is both optimistic about the economy and empathetic to the plight of people who haven't felt the turnaround yet, there are some discomforting realities. Chief among them: Bush looks certain to go into the election with the distinction of being the first President since Herbert Hoover to see the total number of jobs shrink during his term in office.

Democrats point that out often, like whenever they move their lips. "Everywhere I go, I'm meeting people who are talking about working harder, working longer, not getting ahead, wages frozen, health-care costs going up.

People feel very anxious, as manufacturing has slipped away," Democratic front runner John Kerry told TIME. "During Clinton, we had 23 million jobs created. That's almost 3 million a year. Under Bush, we've lost 3 million in three years."

It does not help that a White House that has set the modern standard for message management has been sending up flares in recent days that illuminate for the most jittery Americans the fragility of their situation. First came the observation by Bush's top economist Gregory Mankiw that outsourcing jobs overseas is "probably a plus for the economy in the long run." That may be true in theory, but the statement was so impolitic that even such staunch Bush supporters as House Speaker Dennis Hastert were furious. "An economy suffers when jobs disappear," Hastert said. And so do politicians.

Jobs have always made or broken the political fortunes of Presidents, yet outsourcing packs a powerful new wallop. That's because it hits middle- and upper-income workers—software engineers, X-ray readers, financial analysts—who thought they were immune to the great job exodus to Mexico and China that has decimated blue collars over the past 25 years. These are people who believed they were safe in a global economy, because they worked with their minds, not with their hands. "Outsourcing is the ultimate nightmare issue for the White House, because it's a problem that every voter understands. It's extraordinarily difficult to solve—and impossible to solve in the short run," says Bruce Reed, president of the centrist Democratic Leadership Council, who was also Bill Clinton's chief domestic-policy adviser. And while Bush can blame many of the economy's woes on the vicissitudes of war, terrorism and corporate scandals, outsourcing is one problem that won't go away when those do.

But even as the Democrats denounce the phenomenon, the proposals they offer do little more than attack it at the margins. Kerry calls for a study to examine the problem and possible solutions. He would discourage outsourcing federal contracts and would require employees from outsourced call centers to identify their location so that consumers can respond to that information as they see fit. (His own campaign was embarrassed by a firm it had hired that was routing calls to Wisconsin voters through Canada.) North Carolina Senator John Edwards would also try a combination of browbeating and suasion: he would create a new Office for Corporate Responsibility at the Commerce Department to encourage companies to keep jobs here rather than outsourcing them.

Outsourcing isn't the only jobs issue the Bush White House has uncharacteristically bumbled lately. Another political land mine exploded when the 417-page Economic Report of the President, sent to Congress under Bush's signature, delivered the staggeringly optimistic forecast that the economy would create millions of jobs this year. When asked about the prediction, Bush backed away, avoiding a question about the number after his Treasury Secretary and Commerce Secretary cast doubt upon it. Yet another section of the report raised the important question of whether making a sandwich at a fast-food restaurant (some assembly required) should be reclassified as a manufacturing job—a prospect that brought immediate comparisons to Ronald Reagan's disastrous effort to classify catsup as a vegetable on school-lunch menus.

In an election year, or any other time, no one wants to hear that his or her job is gone forever. What makes the jobs issue particularly potent this year is the fact that the states with the biggest manufacturing job losses happen to be such swing states as Michigan, Ohio and Pennsylvania. Administration officials tout Bush's plans to strengthen community colleges and career centers and provide up to $3,000 to help displaced workers find new jobs. But as Edwards likes to point out as he stumps for the Democratic nomination, that's little comfort if there are no jobs waiting in your community when you get out of school. A 2001 Labor Department audit found that only 1 in 5 who participated in programs for displaced workers found jobs for which they had been retrained; nearly 40% ended up working part time or for less than they had earned before; 28% had not yet found any work at the end of their training.

So how would the Democrats ease the pain of outsourcing? Both Kerry and Edwards have put forth a set of proposals that focus on the tax code—closing loopholes that make it more profitable to move jobs overseas, offering new incentives to keep them here. But no one believes that companies are moving overseas simply to save money on their taxes. So increasingly the nomination battle, which grew more intense last week with Edwards' surprisingly strong second-place finish in Wisconsin, is turning toward which candidate would do more to toughen trade agreements. It's a debate Bush campaign officials confidently predict will backfire on the Democrats. "We have a new economy, and they have yesterday's wrong ideas," said Bush campaign manager Ken Melhman. Maybe so, but if Bush can't convince voters he's got some ideas too, one job that might disappear come November is his.

Wednesday, May 04, 2005

Software outsourcing issues

Software outsourcing is used as a measure to cut the cost on resources and concentrate on core business. However it can be an expensive affair if it is not managed properly and in turn can be a failure.

According to Gartner one out of every four outsourcing deal is failing at present. Many industry analysts believe that, very few number of outsourcing projects are problem free. There are many reasons for the failure of outsourcing project. Software outsourcing doesn't mean giving requirements and forget about it. It is a delicate issue and should be handled with care. There are many issues which creates problem like source code ownership, communication time difference, communication methods, cultural difference etc. However, though it is risky and problematic, an experienced manager can always get maximum benefits from outsourcing. Thats why, companies around the globe are using offshore software development to reduce the cost, access advanced technology, compensate for a lack of skilled IT workers, improve business efficiency and remain competitive in global market. A successful outsourcing relationship requires vendor and buyer to communicate and work simultaneously together and solve each issue step by step.

Find more information about outsourcing issues
Wednesday, May 04, 2005

Programming jobs are heading overseas by the thousands. Is there a way for the U.S. to stay on top?

Stephen Haberman was one of a handful of folks in all of Chase County, Neb., who knew how to program a computer. In the spring of 1999, at the height of the Internet boom, the 17-year-old whiz wanted to strut his stuff outside of his windswept patch of prairie. He was too young for a nationwide programming competition sponsored by Microsoft Corp. (MSFT ), so an older friend registered for him. Haberman wowed the judges with a flashy Web page design and finished second in the country. Emboldened, Stephen came up with a radical idea: Maybe he would skip college altogether and mine a quick fortune in dot-com gold. His mother, Cindy, put the kibosh on his plan. She steered him to a full scholarship at the University of Nebraska at Omaha.

Half a world away, in the western Indian city of Nagpur, a 19-year-old named Deepa Paranjpe was having an argument with her father. Sure, computer science was heating up, he told her. Western companies were frantically hiring Indians to scour millions of software programs and eradicate the much-feared millennium bug. But this craze would pass. The former railroad employee urged his daughter to pursue traditional engineering, a much safer course. Deepa had always respected her father's opinions. When he demanded perfection at school, she delivered nothing less. But she turned a deaf ear to his career advice and plunged into software. After all, this was the industry poised to change the world.

As Stephen and Deepa emerge this summer from graduate school -- one in Pittsburgh, the other in Bombay -- they'll find that their decisions of a half-decade ago placed their dreams on a collision course. The Internet links that were being pieced together at the turn of the century now provide broadband connections between multinational companies and brainy programmers the world over. For Deepa and tens of thousands of other Indian students, the globalization of technology offers the promise of power and riches in a blossoming local tech industry. But for Stephen and his classmates in the U.S., the sudden need to compete with workers across the world ushers in an era of uncertainty. Will good jobs be waiting for them when they graduate? "I might have been better served getting an MBA," Stephen says.

U.S. software programmers' career prospects, once dazzling, are now in doubt. Just look at global giants, from IBM (IBM ) and Electronic Data Systems (EDS ) to Lehman Brothers (LEH ) and Merrill Lynch (MER ). They're rushing to hire tech workers offshore while liquidating thousands of jobs in America. In the past three years, offshore programming jobs have nearly tripled, from 27,000 to an estimated 80,000, according to Forrester Research Inc. (FORR ). And Gartner Inc. figures that by yearend, 1 of every 10 jobs in U.S. tech companies will move to emerging markets. In other words, recruiters who look at Stephen will also consider someone like Deepa -- who's willing to do the same job for one-fifth the pay. U.S. software developers "are competing with everyone else in the world who has a PC," says Robert R. Bishop, chief executive of computer maker Silicon Graphics Inc. (SGI ).

For many of America's 3 million software programmers, it's paradise lost. Just a few years back, they held the keys to the Information Age. Their profession not only lavished many with stock options and six-figure salaries but also gave them the means to start companies that could change the world -- the next Microsoft, Netscape (AOL ), or Google. Now, these veterans of Silicon Valley and Boston's Route 128 exchange heart-rending job-loss stories on Web sites such as Suddenly, the programmers share the fate of millions of industrial workers, in textiles, autos, and steel, whose jobs have marched to Mexico and China.

"Leap of Faith"This exodus throws the future of America's tech economy into question. For decades, the U.S. has been the world's technology leader -- thanks in large part to its dominance of software, now a $200 billion-a-year U.S. industry. Sure, foreigners have made their share of the machines. But the U.S. has held on to control of much of the innovative brainwork and reaped rich dividends, from Microsoft to the entrepreneurial hotbed of Silicon Valley. The question now is whether the U.S. can continue to lead the industry as programming spreads around the globe from India to Bulgaria. Politicians are jumping on the issue in the election season. And it will probably rage on for years, affecting everything from global trade to elementary-school math and science curriculums.

Countering the doomsayers, optimists from San Jose, Calif., to Bangalore see the offshore wave as a godsend, the latest productivity miracle of the Internet. Companies that manage it well -- no easy task -- can build virtual workforces spread around the world, not only soaking up low-cost talent but also tapping the biggest brains on earth to collaborate on complex projects. Marc Andreessen, Netscape Communications Corp.'s co-founder and now chairman of Opsware Inc. (OPSW ), a Sunnyvale (Calif.) startup, sees this reshuffling of brainpower leading to bold new applications and sparking growth in other industries, from bioengineering to energy. This could mean a wealth of good new jobs, even more than U.S. companies could fill. "It requires a leap of faith," Andreessen admits. But "in 500 years of Western history, there has always been something new. Always always always always always."

This time, though, there's no guarantee that the next earth-shaking innovations will pop up in America. Deepa, for example, has high-speed Internet, a world-class university, and a venture-capital industry that's starting to take shape in Bombay. What's more, her home country is luring back entrepreneurs and technologists who lived in Silicon Valley during the bubble years. Many came home to India after the crash and now are sowing the seeds of California's startup culture throughout the subcontinent. What's to stop Deepa from mixing the same magic that Andreessen conjured a decade ago when he co-founded Netscape? It's clear that in a networked world, U.S. leadership in innovation will find itself under siege.

The fallout from this painful process could be toxic. One danger is that high-tech horror stories -- the pink slips and falling wages -- will scare the coming generation of American math whizzes away from software careers, starving the tech economy of brainpower. While the number of students in computer-science programs is holding steady -- for now -- the elite schools have seen applications fall by as much as 30% in two years. If that trend continues, the U.S. will be relying more than ever on foreign-born graduates for software innovation. And as more foreigners decide to start careers and companies back in their home countries, the U.S. could find itself lacking a vital resource. Microsoft CEO Steven A. Ballmer says the shortfall of U.S. tech students worries him more than any other issue. "The U.S. is No. 3 now in the world and falling behind quickly No. 1 [India] and No. 2 [China] in terms of computer-science graduates," he said in late 2003 at a forum in New York.

Fear in the industry is palpable. Some of it recalls the scares of years past: OPEC buying up the world in the '70s and Japan Inc. taking charge a decade later. The lesson from those episodes is to resist quick fixes and trust in the long-term adaptability of the U.S. economy. Job-protection laws, for example, may be tempting. But they could hobble American companies in the global marketplace. Flexibility is precisely what has allowed the U.S. tech industry to adapt to competition from overseas. In 1985, under pressure from Japanese rivals, Intel Corp. exited the memory-chip business to concentrate all its resources in microprocessors. The result: Intel stands unrivaled in the business today.

While the departure of programming jobs is a major concern, it's not a national crisis yet. Unemployment in the industry is 7%. So far, the less-creative software jobs are the ones being moved offshore: bug-fixing, updating antiquated code, and routine programming tasks that require many hands. And some software companies are demonstrating that they can compete against lower-cost rivals with improved programming methods, more automation, and innovative business models.

For the rest of the decade, the U.S. will probably maintain a strong hold on its software leadership, even as competition grows. The vast U.S. economy remains the richest market for software and the best laboratory for new ideas. The country's universities are packed with global all-stars. And the U. S. capital markets remain second to none. But time is running short for Americans to address this looming challenge. John Parkinson, chief technologist at Cap Gemini Ernst & Young, estimates that U.S. companies, students, and universities have five years to come up with responses to global shifts. "Scenarios start to look wild and wacky after 2010," he says. And within a decade, "the new consumer base in India and China will be moving the world."

People SkillsTo thrive in that wacky world, programmers like Stephen must undergo the career equivalent of an extreme makeover. Traditionally, the profession has attracted brainy introverts who are content to code away in isolation. With so much of that work going overseas, though, the most successful American programmers will be those who master people skills. The industry is hungry for liaisons between customers and basic programmers and for managers who can run teams of programmers scattered around the world. While pay for basic application development has plummeted 17.5% in the past two years, according to Foote Partners, a consultant in New Canaan, Conn., U.S. project managers have seen their pay rise an average of 14.3% since 2002.

Finding those high-status jobs won't be easy. Last summer, 34-year-old Hal Reed was so hungry for a programming job that he answered an ad in the Boston Globe for contract work at cMarket, a Cambridge (Mass.) startup. The pay was $45,000 -- barely more than an outsourcing company charges for Indian labor. But he took it. Fortunately for him, he was able to convince his new boss quickly that he was much more than a programmer. He could lead a team. Within weeks, his boss nearly doubled Reed's pay and made him the chief software architect. "He had great strategic thinking skills," says Jon Carson, cMarket' chief executive. "You can't outsource that."

To prepare students for the hot jobs, universities may need to revamp their computer-science programs. Carnegie Mellon University, where Stephen now studies, has already begun that process. His one-year master's program focuses on giving students the skills needed to manage teams and to play the role of software architect. Such workers are the visionaries who design massive projects or products that hundreds or even thousands of programmers flesh out.

The key players in the drama, including these two master's students, Stephen and Deepa, don't have the luxury to wait and see how it turns out. Their time is now. Deepa graduates in May from the Bombay campus of the Indian Institute of Technology, a top university nestled between two lakes. Stephen emerges three months later from the Pittsburgh campus of CMU.

The options they're eyeing illustrate the unfolding map of an industry in full mutation. A software career is no refuge for the faint of heart. Deepa, for example, could suffer if the U.S. government moves to block offshore development or if rocky experiences in foreign lands spark an industry backlash. And Stephen, if he misplays his hand, could find himself competing with lowballing Filipinos or Uruguayans.

For now, their stories reflect the moods in their two countries -- one with lots to lose, the other with a world to win. Deepa is brimming with optimism about the future, convinced that her opportunities are limited by nothing more than her imagination. She is thinking not only about the next job but about the startup that she'll found after that. Stephen, by contrast, is cautious. Even at 22, he's attuned to the risks of a global market for software talent. While confident he'll make a good living, he's plotting out a career that sacrifices opportunities for a measure of safety. Self-protection, an afterthought five years ago, is a pillar of his strategy.

Seeking a NicheIt's midday in the windowless basement labs at CMU's Wean Hall. Stephen, tall and lanky, wearing a white T-shirt tucked into jeans, leans back in his chair and ponders his future. He signed up for the master's program at CMU on the advice of a professor in Omaha who told him that graduates with an MS could land more interesting jobs and make more money. But now the big recruiters coming onto the snowy Pittsburgh campus -- companies such as Microsoft and Inc. (AMZN ) -- are hiring cheaper undergrads, he says, and barely giving the masters a look. Sure, other recruiters come knocking. Banks, he says with a grimace. Insurance companies. But the idea of working in a finance-industry tech shop leaves him cold. "I'm not even interviewing," he says.

The 17-year-old hotshot who was ready to skip college and make a mint has undergone quite a change. He's married, has witnessed the bumps in the world of software, and plans to establish "an upper-middle-class lifestyle, and maybe more" as a businessman. His plan is to carve out a niche for himself back in Omaha. He'll gather three or four colleagues and produce custom software for businesses in town, from hospitals and steakhouses to law firms. Omaha is plenty big, he says, for a good business, but it's remote enough to insulate his startup from offshore competition -- and even from the bigger competitors in Chicago.

Stephen understands the threat posed by smart and hungry programmers in distant lands. He was once such a programmer himself. From his senior year in high school all the way through college, he worked as a freelancer for a New York software-development company, Beachead Technologies Inc. Geoff Brookins, Beachead's young founder, spotted Stephen's prize-winning entry in the 1999 Microsoft Web-site design contest. He called Nebraska, sent Stephen some work, and was blown away. "He did two months of work in three days," he recalls. Brookins quickly signed him on at $15 an hour, ultimately paying him $45 an hour. Like the Indians, Stephen provided a low-cost alternative to big-city programmers -- but he had an advantage because he spoke American English and was only one time zone away from New York.

The job let Stephen work on projects that normally would have been far beyond the reach of a student. One was to create IBM's (IBM ) Web page for its Linux operating-system technology -- a crucial arm of Big Blue's business. "Stephen was lead engineer on that project," Brookins says. The student also got to spend much of the summer of 2001 working at Beachead's office in New York City. It was a fun contrast to Nebraska, he recalls. But he stopped working for Beachead after he moved to Pittsburgh last summer.

It was there that Stephen got a strong signal that the prospects were dimming for programmers. When his wife, Amy, a fellow computer-science student from Nebraska, began looking for programming work, she came back to their suburban apartment disheartened. The only available jobs, she says, "would have paid me interns' rates." She ditched the profession and is now writing a Christian-themed novel.

Then, Stephen's old boss hammered home the dangers of coding for a living in a wired world. Beachead's competitors were finding cheaper labor offshore, and Brookins, to win contracts, had to match them. Last fall, he logged on to a Web site, RentACoder, a matchmaking service between employers and some 30,000 programmers around the world. There, Brookins found a 27-year-old Romanian named Florentin Badea, a star from Bucharest's Polytechnic University and the 11th-ranked programmer on the whole site. Badea was willing to charge just $250 for a project that would have cost $2,000, Brookins estimates, if Stephen had done it.
Those same global forces, Stephen admits, could eventually hollow out his business in Omaha. Already, Indian tech-services outfits such as Infosys and Wipro are competing head-to-head with U.S. companies in this country. But Stephen is betting that by working closely with customers, he can whip bigger firms on quality and service. He says he'll give the venture six months to a year and then see what happens.

Ultrafast TrackDeepa sees a reverse image of Stephen's worldview. Where the prospects for U.S. tech grads seem to narrow as they peer into the future, she's looking down an eight-lane highway. Yet she faces her own set of challenges, she acknowledges, while sipping tea with her classmates in a breezy open-air cafeteria on the Indian Institute of Technology's Bombay campus. They don't want to be cogs in a software-programming factory -- India's role to date. Instead, they want India to be a tech powerhouse in its own right. "Good Indian engineers can do good design work, but we need a venture industry" so Indians can start their own companies, says Deepa. Her pals nod in agreement.

Deepa is positioned on India's ultrafast track. The country pins high hopes on the 3,000 students in the six Institutes of Technology. Their alumni are stars locally and worldwide -- including Yogen Dalal, a top venture capitalist at Mayfield, and Desh Deshpande, founder of Sycamore Networks and Cascade Communications. Within this elite, Deepa and her friends are a rarified breed. They aced the grueling national exams, ranking in the top 0.2% and winning places in the school of computer science. They're known as "toppers." The challenge for Deepa's small crowd is to move beyond the achievements of Dalal and Deshpande, who notched their successes for U.S. companies, and to make their mark with new Indian companies.

That means bypassing the bread-and-butter service giants, such as Tata, Infosys, and Wipro, that dominate the Indian stage. The jobs they offer, says Deepa, sound boring. To get their hands on exciting research and more creative programming, she and her friends are banking mostly on U.S. companies in India, including Intel, Texas Instruments, and Veritas. This summer, when Deepa graduates, she'll be a software engineer at the Pune operations of Veritas Software Corp. (VRTS ), a Silicon Valley storage-software maker. Her pay will start at $10,620 a year -- plenty for a comfortable middle-class life in India. "I'm living my dream," she says.

And thrilling her family. Her father, Arun Paranjpe, who grew up in Mhow, a tiny army-base town in central India, could afford only a bachelor's degree, which prepared him for work as an officer in India's railways. He regretted not advancing further and along with Deepa's homemaker mother, he pushed his two daughters toward advanced professional degrees. So while she studied Indian classical vocal music for nine years and escaped, when she could, to the cricket field, Deepa always finished at the top of her class in mathematics. That helped her land a plum spot in the computer-science program at Nagpur University.

Now Deepa is ITT-Bombay's star in search technology -- and she's hoping that this specialty will be her ticket to a rip-roaring career. She routinely works till 3 a.m. in the department's new 20-pod computer lab, doing research on search engines. She admits the work at Veritas, at least initially, will involve more routine database tasks than the cutting-edge work she's hoping for. But if Veritas disappoints, a topper like Deepa will have plenty of other options. Both the search giant Google Inc. and the Web portal Yahoo! are setting up research and development centers in India this year. Deepa hopes to manage a research lab some day, and ultimately, she says, "I'd like to be an entrepreneur."

But she's an entrepreneurial revolutionary and family traditionalist at the same time. It's part of her balancing act. Consider her eventual marriage. As an attractive, professional woman, she'll make a prize catch in India's conservative marriage market. Deepa expects she will have an arranged marriage: Her parents will chose a suitable husband for her from within her own caste. But she is firm: Her husband would have to be an entrepreneur, or a tech whiz, and preferably in the same field, "so we can have a common platform and he can understand my work," she says.

Maybe one day the couple will be able to raise venture money together. While venture-capital investing didn't exist in India until a few years ago, the industry is starting to take root. In 2003, India's 85 venture-capital firms invested about $162 million in tech companies, according to estimates from the India trade group National Association of Software & Services Cos. That's up from zero in 1998. Still, it's miles short of the financial support available to Stephen and his classmates. The 700 U.S. venture firms poured $9.2 billion into tech startups last year, according to market researcher VentureOne.

Multicultural EdgeDiversity is another advantage the U.S. has over India. Take a stroll with Deepa through the leafy ITT campus, and practically everyone is Indian. Stephen's scene at CMU, by contrast, feels like the U.N. Classmates joke in Asian and European languages, and a strong smell of microwaved curry floats in the air. This atmosphere extends to American tech companies. With their diverse workforces, American companies can field teams that speak Mandarin, Hindi, French, Russian -- you name it. As global software projects take shape, with development ceaselessly following the path of daylight around the globe, multicultural teams have a big edge. Who better than U.S.-based workers to stitch together these projects and manage them? "These people can act as bridges to the global economy," says Amar Gupta, a technology professor at Massachusetts Institute of Technology's Sloan School of Management.

The question is whether the technology industry can respond quickly enough to a revolution that's racing ahead on Internet time. Stephen's former boss, Brookins, frets that the pace could overwhelm the coming generation of U.S. programmers, including his former Nebraska star. "He's a genius. He's the future of the country. [But] if the question is whether there's going to be a happy ending for Stephen, there's a big question mark there," Brookins says. Stephen is betting that quality and customer service will offset the cost advantage of having computer programmers 10 time zones away. He still sees software in the U. S. as a path to wealth -- "though I won't really know until I get out there," he says.

While Stephen is busy mounting his defenses, Deepa is setting out on the hard climb to build Silicon India. Much like their two countries, the leader is looking cautiously over his shoulder while the challenger is chugging single-mindedly ahead. No matter which way they may zig or zag, both of them are prepared to encounter rough competition from every corner of the globe. There's no such thing as a safe distance in software anymore.

Monday, May 02, 2005

Indians tipped to stay on top, for now

Angus Kidman INDIA may be the dominant player in offshoring IT and business activities, but other countries are seeking to curry favour with executives and grab a share of an increasingly busy market.
There's a lot at stake. Analysts at Gartner estimate that global spending on offshoring will reach $65 billion by 2007. Analysts say India is unlikely to be be toppled from its position as offshoring champion in the near future.

Its position at the top of the offshoring ladder is supported by English language skills; a well-established legal system; low labour costs; and a large pool of offshoring specialists with representation in client markets such as the US and Australia.

Gartner vice-president Bob Hayward says there's no evidence of any big Australian companies examining offshoring in markets outside of India, in part because no organisations from other countries have set up offices here.

"The most successful offshore providers have invested heavily in front offices," he says.
India has had a focus on overseas markets from the very beginning of its IT industry, he says.
However, in the longer term, China is emerging as a threat to India's dominance. Some eastern European countries may also tarnish its technology crown.

The top-five offshoring destinations this year are India, China, Costa Rica, the Czech Republic and Hungary, according to the Global Outsourcing Report by Horasis and Going Global Ventures.

The Economist Intelligence Unit has a slightly different take on the market. It lists the main players as: India, China, the Czech Republic, Singapore and Poland.

The Global Outsourcing Report says the situation will change by 2015.

China will have demoted India to second place, and larger nations, the US, Brazil and Russia, will have used scale to reassert their dominance in the global marketplace, it says.

Skills shortages and other factors are beginning to influence offshoring decisions.

A survey by Hewitt Associates found that a lack of skilled staff was forcing some companies into offshoring regardless of cost.

Gartner analyst Partha Iyengar says cost is not the only factor. "While cost savings is the most frequently cited reason for the decision to rely on offshore sourcing, it is not the only driving force between teaming offshore and local development groups."

However, cheaper labour is the main reason companies are shifting IT activities across borders.
In that field, while India remains competitive compared with Western nations, it is facing stiff competition by players such as China.

At the lowest end, Vietnamese programmer salaries are typically half of those in India, and less than a tenth of the comparable salary in Australia.

Gartner predicts Indian labour costs may rise by as much as 60 per cent by 2008.

Indian outsourcing providers are keen to downplay the threat.

"Areas such as China, Eastern Europe and the Philippines are becoming major players in IT offshoring but India still has an overwhelming advantage because of the support of the government and the country's huge talent pool," Wipro chairman Azim Premji said in a recent interview.

One commonly-touted scenario suggests India will dilute the threat from China by using Chinese labour to do basic tasks, but retain the overall management of offshoring contracts.

Many of the emerging offshoring players are concentrating their skills in particular fields.

The Philippines has developed a solid reputation for call-centre and data-entry outsourcing, while a number of eastern European countries specialise in high-end coding tasks and security applications.

One potential advantage for Soviet countries may be their legacy of a well-developed education system compared to their Asian counterparts, providing a solid pool of staff for more technically oriented activities.
Conversely, they are perceived as lacking political stability and legal sophistication.

Political stability is less of an issue for centrally-managed China, but a lack of English language skills may restrict its ability to grow.

Hayward says most Chinese IT companies can get plenty of business from the growing domestic market and don't yet need to look offshore for revenue.

The emergence of these new players does not spell good news for Australian IT workers.
The Global Outsourcing Report says that while only 32 per cent of companies are offshoring, half of those that do cut positions in their home countries.

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Sunday, May 01, 2005

Siemens Information Systems To Expand BPO Operations

MUMBAI: Siemens Information Systems (SISL) Ltd, one of the leading Systems Integrators and a total solutions provider will be expanding its business process outsourcing (BPO) operations in the next 6 months from the current 50 agents to 200 agents. SISL’s Managing Director Anil Laud said that this could grow to a ‘couple of 1,000’ agents in the next 18 months. The BPO business of the company had commenced a year back and is called Siemens Shared Services. Mr Laud added that this name might undergo a change. When set up, the shared services were restricted only to Siemens. The company has recently exten-ded its services to Siemens’ customers. SISL has also signed a distribution agreement with VocalTec Communications, a telecom equipment provider offering packet voice solutions for carriers and service providers. SSIL will offer vocaltec’s end-to-end solutions, both hardware and software, along with its own system integration services for third party software vendors within India and neighbouring regions excluding Nepal and including the Middle East.

VocalTec’s solutions include international and long distance calling, voice VPN, calling card, excha-nge carrier and ‘surf & call’ e-comm.

VocalTec also plans to offer intra-state voice over Internet protocol (VoIP) services as soon as the concept receives regulatory approval. VocalTec’s vice-president sales (Asia-Pacific) Zwicka Ben Zion says, “We have the solution ready for the intra-state Internet telephony market, once the telecom regulator agrees to its use we will introduce the system in India.” He said domestic and global market trends would induce the telecom regulatory authority of India to allow use of VoIP by way of mobile phones.

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Sunday, May 01, 2005

Are Too Many Jobs Going Abroad?

RiOSEN SHARMA IS SURE ABOUT ONE THING. HIS NINE-month-old company, Solidocore, a start-up that makes backup security systems for computers, could not survive without software outsourcing . By lowering his development costs, the 18 engineers who work for him in India for as little as one-fourth the salary of their American counterparts allow him to spend money on 13 senior managers, engineers and marketing people in Silicon Valley. If he doesn’t outsource, in fact, the venture capitalists who fund stat-ups like his won’t give him a nickel. Sharma’s Indian-American team, tethered by a broadband connection, gets his product in front of customers faster and cheaper. “As a business, you have to stay competitive,” he says. “If we don’t do it, our competitors will, and they’re going to blow us away.”

But Sharma’s sharp analysis loses its edge when he thinks about what decisions like his will mean someday for his children, a 2-year-old daughter and another on the way. “As a father, my reaction is different than my reaction as a CE,” he says. He believes that companies like his will always need senior people in the U.S. like the systems architect who designs new products and the experienced salespeople who close deals. “But if you’re graduating from college today, where are the entry-level jobs?" Sharma asks quietly. How do you get to that secure, skilled job when the path that path you there has disappeared?

That’s an issue that economists, politicians and workers are struggling with as the U.S. finds itself in the middle of a structural shift in the economy that no one quite expected. There must be a mix-up here. We ordered a recovery, heavy on the jobs, please. What we’re getting is a new kind of homeland insecurity powered by the rise of outsourcing, a bland yet ominous piece of business jargon that seems to imply that every call center, insurance-claims processor, programming department and Wall Street back office is being moved to India, Ireland or some other place thousands of miles away.

To be sure, public anxiety and election-year finger pointing have blurred some important distinctions. To set them straight: most of the jobs that have shifted to places like Mexico and China in the past several decades have been in manufacturing, which is being done with ever increasing sophistication in low-wage countries. Some have also blamed trade-liberalization deals like the North American Free Trade Agreement (NAFTA), which the Labor Department estimates was responsible for the loss of more than 500,000 U.S. jobs between 1994 and 2002. That’s significant number but modest in comparison with the millions of jobs that are created and lost annually in the constant churn of the U.S. economy. Indeed, much of the job loss during the recent U.S. recession was cyclical in nature. But in recent years, one noteworthy segment of the economy began suffering from the permanent change of outsourcing (or off-shoring), particularly the movement of service-industry, technology-oriented jobs to overseas locations with lower salaries. What puts teeth into the buzz words is the sense that getting outsourced could happen to almost anyone.

Outsourcing, primarily to India, accounts for less than 10% of the 2.3 million jobs lost in the U.S. over the past three years. But the trend is speeding up, and it is quickly becoming the defining economic issue of the election campaign. The Administration learned that the hard way a few weeks ago, when President Bush’s chief economic adviser suddenly found himself on the wrong side of the issue. In a casually imperious tone worthy of Martha Stewart, Gregory Mankiw declared, “Outsourcing is just a new way of doing international trade…More things are tradable than were tradable in the past, and that’s a good thing.”

Many economists agree with him. Anything that makes an economy more efficient tends to help in the long run. But in reducing job losses to macroeconomix landfill, Mankiw handed Democrats an issue. His words, accompanied by an ominous drumbeat, are now immortalized on the AFL-CIO’s website, just before an image of a beaming John Kerry, who won the union’s endorsement last week.

Kerry is taking the opportunity to paint Bush as insensitive to middle-class job anxieties. “I don’t think the Bush Administration has over felt this or had a sense of it,” Kerry told TIME. “And I think the No.1 major issue facing the country right now is, How do you really create the jobs that we want?” With a touch of demagoguery, John Edwards has sought to get an edge on Kerry by reviving the unresolved battle over NAFTA, which Kerry voted to approve a decade ago. “When it comes to bad trade agreements, I know what they do to people,” Edwards said last week. “ I have seen it with my own eyes what happens when the mill shuts down.” Kerry points out that at the time Edwards was in no position to put anything on the line over NAFTA: “I don’t know where he registered his vote, but it wasn’t in the Senate.”

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