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Peergroup CIO
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Peergroup CIO

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  • April 19-21, 2010
  • Wikipedia April 19-21, 2010
  • Wikipedia April 19-21, 2010
  • From Outsourcing Insider by Audrey B. 9/13/2010 April 19-21, 2010
  • From Outsourcing Insider by Audrey B. 9/13/2010 April 19-21, 2010
  • From Outsourcing Insider by Audrey B. 9/13/2010 April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • Wikipedia April 19-21, 2010
  • Wikipedia April 19-21, 2010
  • April 19-21, 2010
  • From a conference held in late February, 2011, in Mumbai, India – Information pulished by McKinsey and Gartner April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • Sath Sathyanaray is President of Global Development Consulting, Inc. April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • April 19-21, 2010
  • Transcript

    • 1. Outsourcing Jeff Reid March 20 th , 2011
    • 2. <ul><li>Terms </li></ul><ul><li>Current Global State </li></ul><ul><li>Leading, rising cities/countries </li></ul><ul><li>Some Pros and Cons </li></ul><ul><li>Possible Local Outsourcing </li></ul><ul><li>Reasons to Outsource </li></ul><ul><li>Reasons not to Outsource </li></ul><ul><li>Issues to guard against </li></ul><ul><li>More than just Apps Dev </li></ul><ul><li>Personal Observations </li></ul><ul><li>Questions to ask yourself </li></ul><ul><li>Getting Started </li></ul><ul><li>Possible Resources to help </li></ul>Outsourcing – Agenda
    • 3. <ul><li>Outsourcing </li></ul><ul><li>Often viewed as involving the contracting out of a business function – commonly one previously performed in-house – to an external provider </li></ul><ul><li>Offshoring </li></ul><ul><li>T he relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting </li></ul>Outsourcing – Glossary of Terms
    • 4. <ul><li>Near-Shoring </li></ul><ul><li>T he transfer of business or IT processes to companies in a nearby country , often sharing a border with your own country&quot;, where both parties expect to benefit from one or more of the following dimensions of proximity: geographic, temporal (time zone), cultural, linguistic, economic, political, or historical linkages </li></ul><ul><li>Remote Infrastructure Management (RIM) – </li></ul><ul><li>Managing customers IT Infrastructure from low-cost remote locations in adherence to various norms, specific guidelines to data security, meeting the service levels with high uptime for the customer’s mission critical IT Infrastructure, quality service delivery, and round the clock support </li></ul><ul><li>*Wikipedia </li></ul>Outsourcing – Terms
    • 5. <ul><li>The current Global state of outsourcing: </li></ul><ul><li>Total value of outsourcing contracts signed in 2010 was $62.4B </li></ul><ul><ul><li>Eight (8) of these contracts were “mega-deals” of $1B or more </li></ul></ul><ul><li>Consistent with the last 5 years of total contract value data </li></ul><ul><li>6% growth year on year according to outsourcing consultants TPI </li></ul><ul><li>*Outsourcing Insider, Audrey B. 9/13/2010 </li></ul>Outsourcing – Current Global State
    • 6. <ul><li>The current Global state of outsourcing </li></ul><ul><li>India - </li></ul><ul><ul><li>State of Ohio banned offshoring of project by government depts. </li></ul></ul><ul><ul><li>CEO at Infosys says his company will be negatively impacted </li></ul></ul><ul><ul><li>India still leads by a large margin (10% of Tata Consultancy Services employees outnumber all of China’s outsourcing companies </li></ul></ul><ul><li>China - </li></ul><ul><ul><li>Forging Ahead – They are in for incredible growth </li></ul></ul><ul><ul><ul><li>KPMG partner Egidio Zarella </li></ul></ul></ul><ul><ul><li>On 8/11/2010, announced no operating taxes on offshore service outsourcing business in 21 cities until 2013 </li></ul></ul><ul><ul><li>Outsourcing grew with a 21% increase to USD 23.6B in 2009 </li></ul></ul>Outsourcing – Current Global State
    • 7. <ul><li>The current Global state of outsourcing </li></ul><ul><li>Philippines – </li></ul><ul><ul><li>Convergys, a business process outsourcing company, plans to expand it’s workforce from 17K to 22K employees </li></ul></ul><ul><ul><li>Other companies are following suit </li></ul></ul>Outsourcing – Current Global State
    • 8. <ul><li>Cities leading in outsourcing </li></ul><ul><li>Bangalore Chennai Delhi Dublin </li></ul><ul><li>Hyderabad Makati City Mumbai Pune </li></ul><ul><li>Countries being promoted as growing </li></ul><ul><li>Chili Taiwan Singapore Estonia </li></ul><ul><li>* M.M “Sath” Sathyanarayan </li></ul><ul><li>Some rising cities for outsourcing </li></ul><ul><li>Cebu City, Philippines Shanghai, China Beijing, China Ho Chi Minh City, Vietnam </li></ul><ul><li>Krakow, Poland Kolkata, India Cairo, Egypt Sao Paulo, Brazil </li></ul><ul><li>Buenos Aires, Argentina Shenzen, China Hanoi, Vietnam Chandigarh, India </li></ul><ul><li>Curituba, Brazil Prague, Czech Republic Pasig City, Philippines Dalian, China </li></ul><ul><li>Coimbatore, India Santiago, Chile Colombo, Sri Lanka Johannesburg, South Africa </li></ul>Outsourcing – Leading, rising cities/countries
    • 9. <ul><li>Corporate benefits </li></ul><ul><ul><li>Lower costs </li></ul></ul><ul><ul><li>Efficiency without the investment in people/technology </li></ul></ul><ul><ul><li>Increased focus on core competences </li></ul></ul><ul><ul><li>Increased corporate profits </li></ul></ul><ul><li>Corporate drawbacks </li></ul><ul><ul><li>Increased project management complexity </li></ul></ul><ul><ul><li>Loss of control </li></ul></ul><ul><ul><li>Intellectual Property vulnerability </li></ul></ul><ul><li>Offshoring for the US </li></ul><ul><ul><li>Pros – Increased corporate profits </li></ul></ul><ul><ul><li>Cons – Unemployment, loss of industrial base, and high trade deficit </li></ul></ul><ul><li>* Kemarra Inc. </li></ul>Outsourcing – Some Pros and Cons
    • 10. <ul><li>Offshoring for developing countries </li></ul><ul><ul><li>Pros – Cash generation, employment & training, business experience, and infrastructure build up </li></ul></ul><ul><ul><li>Cons – vulnerable to cheaper outsourcing and lock into low-wage economy </li></ul></ul><ul><li>When there are reciprocal returns between countries </li></ul><ul><ul><li>OK if cash earned by countries providing outsourcing services returns to the US via purchase of US goods </li></ul></ul><ul><ul><li>One of the reasons for Foreign Trade Agreements (FTA) </li></ul></ul><ul><li>When there are not reciprocal returns </li></ul><ul><ul><li>We see China buy far less goods from the US </li></ul></ul><ul><ul><li>Outflow of US funds without cash returns to the US </li></ul></ul><ul><li>* Kemarra Inc. </li></ul>Outsourcing – Some Pros and Cons
    • 11. <ul><li>President Obama visits India </li></ul><ul><ul><li>Sought greater economic cooperation with India to boost US job creation </li></ul></ul><ul><ul><li>Boost exports as India is one of the fastest growing economies </li></ul></ul><ul><ul><li>Claims the opportunity is 50,000 jobs </li></ul></ul><ul><li>* Booz Global Engineering </li></ul>Outsourcing – A change in stance?
    • 12. <ul><li>Cost Mesa – Proposed Outsourcing </li></ul><ul><ul><li>Safety - All Fire Department Operations, City Jail Services, Animal Control, and Special-event safety </li></ul></ul><ul><ul><li>Roads - Street Sweeping, Street maintenance, Parkway and Median maintenance, and Fleet maintenance </li></ul></ul><ul><ul><li>Facilities - Park Maintenance, Facility maintenance, Building Inspection, and Graffiti abatement </li></ul></ul><ul><ul><li>Operations - IT/Telecom services, Printing, Payroll Services, and Employee benefit administration </li></ul></ul><ul><li>* Orange County Register 3/1/2011 </li></ul>Outsourcing – Possible Local Outsourcing
    • 13. <ul><li>Costa Mesa – Proposed Outsourcing </li></ul><ul><li>Cost savings – </li></ul><ul><ul><li>The city is running at a $1.4M deficit this year </li></ul></ul><ul><ul><li>Has accumulated more that $130M in unfunded pension liability </li></ul></ul><ul><ul><li>Estimate is that within five years $25M will go to pensions </li></ul></ul><ul><ul><li>That is roughly one quarter of the city budget </li></ul></ul><ul><li>Other reasons besides cost that companies Outsource </li></ul><ul><ul><li>Access to specialized or hard to find skills </li></ul></ul><ul><ul><li>Unable to retain skills in your business environment </li></ul></ul><ul><ul><li>Need isn’t full time </li></ul></ul><ul><ul><li>The outsource provider can just to it better than you (i.e. ADP) </li></ul></ul><ul><ul><li>The work is not “Core” to the business </li></ul></ul><ul><li>* Orange County Register 3/1/2011 </li></ul>Outsourcing – Possible Local Outsourcing
    • 14. <ul><li>Quote of the day </li></ul><ul><ul><li>Collectively, there are probably three or four (services) that are better candidates than others, Councilman Steve Mensinger said, mentioning street sweeping and IT </li></ul></ul><ul><ul><li>It just didn’t sound right to me as an IT guy, but maybe it doesn’t sound right to the street sweeping guy either </li></ul></ul><ul><li>* Orange County Register 3/1/2011 </li></ul>Outsourcing – Possible Local Outsourcing
    • 15. <ul><li>Other reasons to Outsource </li></ul><ul><ul><li>Cost restructuring – move from fixed to variable costs </li></ul></ul><ul><ul><li>Improve quality – Achieve a steep change in quality with SLAs </li></ul></ul><ul><ul><li>Knowledge – Access to intellectual property and wider experience </li></ul></ul><ul><ul><li>Contract – including legal penalties and legal redress </li></ul></ul><ul><ul><li>Operational excellence – Access to established operational best practices </li></ul></ul><ul><ul><li>Access to talent – Access to a larger pool of talent </li></ul></ul><ul><ul><li>Capacity management – risk in providing excess capacity is the suppliers </li></ul></ul><ul><ul><li>Catalyst for change – the outsourcer becomes the change agent </li></ul></ul><ul><ul><li>Enhance innovation – Use external knowledge service providers </li></ul></ul><ul><ul><li>Reduce time to market – ability to scale and add capability </li></ul></ul><ul><li>* Wikipedia </li></ul>Outsourcing – Reasons to Outsource
    • 16. <ul><li>Reasons not to do Outsourcing </li></ul><ul><ul><li>Management processes – The outsources don’t work directly for the managers but instead the contract is managed. It requires a transformation in how we manage. </li></ul></ul><ul><ul><li>Quality of service – Exceptionally important to your customer </li></ul></ul><ul><ul><li>Language skills – Especially in call centers but in all communications </li></ul></ul><ul><ul><li>Security – Legal, security, compliance </li></ul></ul><ul><ul><li>Qualifications of outsourcers – Replace staff with less skilled </li></ul></ul><ul><ul><li>Public opinion – In some of the US there is a strong public opinion against </li></ul></ul><ul><ul><li>Employee morale – Employees feel threatened and/or lose jobs </li></ul></ul><ul><ul><li>Ownership – Lack of “ownership” of the work being done </li></ul></ul>Outsourcing – Reasons not to Outsource
    • 17. <ul><li>Issues raised on the Internet (Not credited to an individual) </li></ul><ul><ul><li>Longer for supplier to setup than expected </li></ul></ul><ul><ul><li>Supplier unable to scale fast enough </li></ul></ul><ul><ul><li>Supplier overwhelmed by volume of activity </li></ul></ul><ul><ul><li>Unable to obtain and maintain connectivity and telecom </li></ul></ul><ul><ul><li>Work ethic differs between organization and outsource supplier </li></ul></ul><ul><ul><li>Supplier unable to perform on timely basis </li></ul></ul><ul><ul><li>Supplier unable to meet SLAs and contract </li></ul></ul><ul><ul><li>Contract exit language is inadequate </li></ul></ul>Outsourcing – Issues to Guard Against
    • 18. <ul><li>It’s not just applications development </li></ul><ul><ul><li>Application development (ADM) and Business Process (BPO) “have achieved a degree of maturity” </li></ul></ul><ul><li>Remote Infrastructure Management (RIM) </li></ul><ul><ul><li>Garner describes RIM as a “mega” trend predicting that these services will “continue to increase in use as they will be critical for improving end-user service quality and reducing the cost of service delivery in outsourcing agreements” </li></ul></ul>Outsourcing – More than just Apps Dev
    • 19. <ul><li>Personal observations </li></ul><ul><li>Both sides have to be prepared, not just the Outsource company </li></ul><ul><li>Communications plan – not just when but how </li></ul><ul><li>Ability to create proper specifications/requirements/SLAs </li></ul><ul><li>Reporting </li></ul><ul><li>Training and repeat training after turnover </li></ul>Outsourcing – Personal Observations
    • 20. <ul><li>Expectations are often unrealistic </li></ul><ul><ul><li>The legal contract is important but doesn’t guarantee success </li></ul></ul><ul><ul><ul><li>If only one side wins then neither side wins </li></ul></ul></ul><ul><ul><li>You are entering into a Strategic Supplier relationship </li></ul></ul><ul><ul><ul><li>Are they also doing work for your competitor? </li></ul></ul></ul><ul><ul><li>The issues don’t go away, they become different issues </li></ul></ul><ul><ul><ul><li>Manage the relationship instead of the workers </li></ul></ul></ul><ul><ul><li>The need to do projects outside the SLAs might be a challenge </li></ul></ul><ul><ul><ul><li>Who washed your car? – Your kid or your neighbor’s kid </li></ul></ul></ul>Outsourcing – Personal Observations
    • 21. <ul><li>Personal observations (Cont.) </li></ul><ul><ul><li>Turnover/Retention </li></ul></ul><ul><ul><ul><li>You need to invest in the relationship </li></ul></ul></ul><ul><ul><ul><li>Do they have some pride in your success? </li></ul></ul></ul><ul><ul><ul><li>Do they relate to you? </li></ul></ul></ul><ul><ul><li>What else </li></ul></ul><ul><ul><ul><li>Change management is important - continuous </li></ul></ul></ul><ul><ul><ul><li>Governance too </li></ul></ul></ul><ul><ul><ul><li>Need support/buy in from the business leaders </li></ul></ul></ul><ul><ul><ul><li>End-User support/buy in is a key </li></ul></ul></ul>Outsourcing – Personal Observations
    • 22. Outsourcing – Questions to ask yourself   Factor * M.M “Sath” Sathyanarayan Your score 1 Do you have clearly established goals for your offshore initiative?   2 Is your offshore organization meeting original expectations?   3 Is there consistent expectation between head quarters and offshore organization at all levels?   4 Do you have a clear understanding of productivity of your offshore organization compared with its U.S. counterpart?   5 Do you have a clear understanding of total cost of offshoring - not just salaries?   6 Do you have a clear understanding of the real contribution of your offshore organization?   7 Besides engineering processes, have you integrated management processes, culture and goals?   8 Is it meeting current and future needs of the company?   9 Do you have regular program reviews? How useful are they to manage your initiative?   10 Have you established clear guidelines for project selection?   Total  
    • 23. <ul><li>How would you get started </li></ul><ul><li>1. Identify an expert to help guide you through engagement and selection </li></ul><ul><li>2. Organize a management Steering Committee </li></ul><ul><li>3. Identify critical internal resources </li></ul><ul><li>4. Identify/document what is good and bad about current situation </li></ul><ul><li>5. Update/Review the company’s strategic business plan </li></ul><ul><li>6. Develop a strategic systems plan </li></ul><ul><li>7. Understand the architecture </li></ul><ul><li>8. Understand your cost structure </li></ul><ul><li>9. Identify current and anticipated usage </li></ul><ul><li>10. Review the strengths and weaknesses of the outsourcing alternative </li></ul><ul><li>11. Identify several outsourcing alternatives </li></ul><ul><li>12. What is the order and makeup of the work to be outsourced </li></ul>Outsourcing – Getting started
    • 24. <ul><li>How would you get started (cont.) </li></ul><ul><li>13. Develop a Request for proposal (RFP) </li></ul><ul><li>14. Have a bidder’s conference </li></ul><ul><li>15. Evaluate proposals against your RFP requirements </li></ul><ul><li>16. Rank suppliers so that you have a backup </li></ul><ul><li>17. Check references </li></ul><ul><li>18. Negotiate the contract </li></ul><ul><li>19. Manage the outsourcer and provide feedback </li></ul><ul><li>OR </li></ul><ul><ul><li>Talk to your friends who have done it and figure out who and what worked for them. </li></ul></ul><ul><li>GOOD LUCK ! </li></ul>Outsourcing – Getting Started
    • 25. <ul><li>Some possible resources for you (and they contributed to my efforts) </li></ul><ul><li>M.M. “Sath” Sathyanarayan. Global Development Consulting, Inc. (408) 865-0474. [email_address] . Www.offshoringSuccess.com </li></ul><ul><li>Laki Rajagopal. Manager – Client Services. Intelligroup. (630) 881-4174. [email_address] . </li></ul><ul><li>Neeraj Arora. Business Development Director. Zensar Technology. (408) 876-8821. [email_address] . </li></ul>Outsourcing – Possible Resources to Help

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