May 9, 2006. Call in at 10:55 a.m. Eastern Time Stephanie Moore Vice President Forrester Research Teleconference State Of ...
Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services ...
Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services ...
Trends 2006: Where are we today? <ul><li>North American and Western European companies are more eager than ever to go offs...
Labor costs dominate IT budgets; offshoring is a way to reduce these costs Base: 368 IT executives at North American enter...
Trends 2006: Where are we today? <ul><li>Many companies are still only looking for pure labor arbitrage </li></ul><ul><ul>...
Buyers want best-of-breed services Base: 354 decision-makers who influence outsourcing decisions at US companies Source: F...
Some companies are doing offshore outsourcing without sufficient preparation <ul><li>Internal preparation is the key to su...
What are the offshore challenges? 22% 22% 30% 31% 43% 10% 10% 18% 20% 10% 0% 20% 40% 60% Cultural differences  Vendors lac...
Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services ...
India trends <ul><li>Indian vendors challenged by growth and demand </li></ul><ul><ul><li>Attrition, recruiting, and reten...
Example of rapid growth: Infosys Source: Infosys 17,000 27,500 49,000 0 100 200 300 400 500 600 2003 2004 2005 Clients 0 1...
Example of rapid growth: Infosys CAGR: 50 % Dec ‘00 Dec ‘05 $2B $250M Source: Infosys
Trends 2006 <ul><li>M&A in vendor space </li></ul><ul><ul><li>Indians acquire US firms: Cognizant, Kanbay, Satyam, Wipro. ...
India trends 2006 <ul><li>Customers look for Indian alternatives but are often disappointed by reality. </li></ul><ul><li>...
India trends 2006: What are clients talking about? <ul><li>Contract pricing </li></ul><ul><ul><li>Can I get the vendor to ...
Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services ...
Many services are offered: The Indians have moved up the value chain Application services Business process outsourcing Inf...
What types of work are companies offshoring? Base: 133 IT decision-makers Source: Business Technographics® August 2005 Uni...
Where are companies going to increase their offshore spend?   Base: 133 IT decision-makers Source: Business Technographics...
Testing and infrastructure services are HOT! <ul><li>Testing in three flavors </li></ul><ul><ul><li>Staff augmentation </l...
Forrester Wave™: Global Delivery Infrastructure Management, Q4 ’05 Indians perform well against global infrastructure expe...
BPO services  Value <ul><li>Knowledge Services: </li></ul><ul><li>Research </li></ul><ul><li>Analytics </li></ul><ul><li>L...
Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services ...
Beyond the tier one Indian vendors <ul><li>Covansys </li></ul><ul><li>Kanbay </li></ul><ul><li>ThoughtWorks </li></ul><ul>...
Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services ...
Favorite offshore country is still India Base: 100+ global CIOs and business leaders surveyed at PatniConnect 2006  Source...
China <ul><li>China is an attractive outsourcing destination for companies trying to enter the Chinese market or who alrea...
Other geographies have merit but can’t compete with India for scale or maturity <ul><li>Philippines </li></ul><ul><ul><li>...
Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services ...
Different approaches to offshoring <ul><li>More agile processes </li></ul><ul><ul><li>Increase communication  </li></ul></...
Agile and traditional project timelines Source: September 20, 2004, Best Practices “Offshore Outsourcing And Agile Develop...
Connecting the internal user to the vendor can eliminate (or exacerbate) communication difficulties
Captive strategies are popular but ultimately not practical . . . <ul><li>Much of what you use an outsourcer for is absent...
Captive strategies are popular but ultimately not practical unless . . .  <ul><li>Client has a presence in the foreign geo...
Recommendations <ul><li>Invest in internal preparation. </li></ul><ul><li>Understand the market before you enter it. </li>...
Thank you Stephanie Moore +1 203/221 2859 [email_address]   www.forrester.com
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Stephanie Moore Vice President Forrester Research

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Stephanie Moore Vice President Forrester Research

  1. 1. May 9, 2006. Call in at 10:55 a.m. Eastern Time Stephanie Moore Vice President Forrester Research Teleconference State Of The Market And Latest Developments In Global Outsourcing: What You Need To Know
  2. 2. Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services trends: What are companies offshoring? </li></ul><ul><li>Beyond tier one: cool companies in India </li></ul><ul><li>Other destinations </li></ul><ul><li>New approaches to global sourcing </li></ul><ul><li>Recommendations: doing outsourcing right </li></ul>
  3. 3. Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services trends: What are companies offshoring? </li></ul><ul><li>Beyond tier one: cool companies in India </li></ul><ul><li>Other destinations </li></ul><ul><li>New approaches to global sourcing </li></ul><ul><li>Recommendations: doing outsourcing right </li></ul>
  4. 4. Trends 2006: Where are we today? <ul><li>North American and Western European companies are more eager than ever to go offshore. </li></ul><ul><ul><li>CEO/board of directors mandate </li></ul></ul><ul><li>Existing offshore efforts are scaling rapidly </li></ul><ul><ul><li>From an FTE perspective </li></ul></ul><ul><ul><li>From a service offering perspective </li></ul></ul>
  5. 5. Labor costs dominate IT budgets; offshoring is a way to reduce these costs Base: 368 IT executives at North American enterprises (percentages may not total 100 because of rounding) Source: February 3, 2006, Data Overview “North America's 2006 Enterprise IT Spending Outlook”
  6. 6. Trends 2006: Where are we today? <ul><li>Many companies are still only looking for pure labor arbitrage </li></ul><ul><ul><li>How low will the vendors go? </li></ul></ul><ul><li>The smart ones are looking for value </li></ul><ul><ul><li>How can I improve my processes? </li></ul></ul><ul><ul><li>How can I develop new revenue opportunities? </li></ul></ul><ul><li>Many buyers want best-of-breed rather than a single provider </li></ul><ul><li>Most buyers use between two and five offshore providers to manage demand and pricing </li></ul>
  7. 7. Buyers want best-of-breed services Base: 354 decision-makers who influence outsourcing decisions at US companies Source: February 3, 2006, Data Overview “North America's 2006 Enterprise IT Spending Outlook”
  8. 8. Some companies are doing offshore outsourcing without sufficient preparation <ul><li>Internal preparation is the key to success </li></ul><ul><li>Companies that don’t optimize processes for remote sourcing will not save money and may actually spend more. </li></ul><ul><li>Focus needs to be on governance, SDLC alteration and standardization, customer management processes (requirements and specs), training, and QA </li></ul><ul><li>New roles and responsibilities </li></ul>
  9. 9. What are the offshore challenges? 22% 22% 30% 31% 43% 10% 10% 18% 20% 10% 0% 20% 40% 60% Cultural differences Vendors lack business knowledge Lack of performance metrics No process for specifying the work Lack of project management skills Minor challenge Major challenge The biggest challenges are internal. Base: 103 North American IT and business executives Source: Forrester Research
  10. 10. Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services trends: What are companies offshoring? </li></ul><ul><li>Beyond tier one: cool companies in India </li></ul><ul><li>Other destinations </li></ul><ul><li>New approaches to global sourcing </li></ul><ul><li>Recommendations: doing outsourcing right </li></ul>
  11. 11. India trends <ul><li>Indian vendors challenged by growth and demand </li></ul><ul><ul><li>Attrition, recruiting, and retention </li></ul></ul><ul><ul><li>The need to scale </li></ul></ul><ul><ul><li>Customer expectations </li></ul></ul><ul><ul><li>Accommodating customer processes </li></ul></ul><ul><li>Global vendors like Accenture and IBM are growing rapidly too. </li></ul><ul><ul><li>For example, in 2001, Accenture had 150 employees in India. Today it has 16,500. </li></ul></ul><ul><ul><li>IBM continues to expand in India. </li></ul></ul>
  12. 12. Example of rapid growth: Infosys Source: Infosys 17,000 27,500 49,000 0 100 200 300 400 500 600 2003 2004 2005 Clients 0 10,000 20,000 30,000 40,000 50,000 60,000 Employees
  13. 13. Example of rapid growth: Infosys CAGR: 50 % Dec ‘00 Dec ‘05 $2B $250M Source: Infosys
  14. 14. Trends 2006 <ul><li>M&A in vendor space </li></ul><ul><ul><li>Indians acquire US firms: Cognizant, Kanbay, Satyam, Wipro. A western approach and vertical skills are critical to global success. </li></ul></ul><ul><ul><li>US firms acquire Indians? </li></ul></ul><ul><li>Customer satisfaction reduced by 50% between 2003 and 2005. </li></ul><ul><ul><li>Attrition </li></ul></ul><ul><ul><li>Increase in hard costs </li></ul></ul><ul><ul><li>Decrease in vendor flexibility </li></ul></ul><ul><ul><li>Understanding of total cost of outsourcing </li></ul></ul>
  15. 15. India trends 2006 <ul><li>Customers look for Indian alternatives but are often disappointed by reality. </li></ul><ul><li>Captive as clients </li></ul><ul><ul><li>Underperforming captive organizations seek support. </li></ul></ul><ul><li>Wage inflation </li></ul><ul><li>Prices are inflating, but not as rapidly as wages. </li></ul><ul><ul><li>Rates increase by about 10%. </li></ul></ul><ul><ul><li>Bands of pricing versus one blended rate </li></ul></ul><ul><ul><li>Lower quality staff in return for stable/lower rates </li></ul></ul>
  16. 16. India trends 2006: What are clients talking about? <ul><li>Contract pricing </li></ul><ul><ul><li>Can I get the vendor to make creative rate concessions (different locations, skill sets, volume)? </li></ul></ul><ul><ul><li>Inflation clauses? </li></ul></ul><ul><li>Attrition </li></ul><ul><ul><li>SLAs, HR practice audits </li></ul></ul><ul><li>Vertical skills as a differentiator </li></ul><ul><li>Methodologies: Lighter weight — more agile </li></ul>
  17. 17. Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services trends: What are companies offshoring? </li></ul><ul><li>Beyond tier one: cool companies in India </li></ul><ul><li>Other destinations </li></ul><ul><li>New approaches to global sourcing </li></ul><ul><li>Recommendations: doing outsourcing right </li></ul>
  18. 18. Many services are offered: The Indians have moved up the value chain Application services Business process outsourcing Infrastructure services Consulting Program Management Contact centers, collection services, KPO (research/analytics), mortgage processing, legal services, tax preparation, claims processing Architecture, IT strategy, process, quality, strategic sourcing Testing, app dev, maintenance, prod support Monitoring, server mgmt., DBA, DT mgmt
  19. 19. What types of work are companies offshoring? Base: 133 IT decision-makers Source: Business Technographics® August 2005 United States Enterprise Governance Survey
  20. 20. Where are companies going to increase their offshore spend? Base: 133 IT decision-makers Source: Business Technographics® August 2005 United States Enterprise Governance Survey
  21. 21. Testing and infrastructure services are HOT! <ul><li>Testing in three flavors </li></ul><ul><ul><li>Staff augmentation </li></ul></ul><ul><ul><li>Test process optimization </li></ul></ul><ul><ul><li>Testing centers of excellence </li></ul></ul><ul><li>Infrastructure services </li></ul><ul><ul><li>Monitoring </li></ul></ul><ul><ul><li>Desktop management </li></ul></ul><ul><ul><li>Server management </li></ul></ul><ul><ul><li>Consulting: server consolidation, etc. </li></ul></ul>
  22. 22. Forrester Wave™: Global Delivery Infrastructure Management, Q4 ’05 Indians perform well against global infrastructure experts. Example: Wipro and data center outsourcing
  23. 23. BPO services Value <ul><li>Knowledge Services: </li></ul><ul><li>Research </li></ul><ul><li>Analytics </li></ul><ul><li>Legal </li></ul><ul><li>Risk management </li></ul><ul><li>Underwriting </li></ul><ul><li>Medical </li></ul><ul><li>Pharmaceutical research </li></ul>KPO Contact Center Services: Telemarketing Reservations Collections Low-value services: Data entry Medical transcription Transaction processing Higher-value corporate services: HR Finance and accounting Procurement
  24. 24. Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services trends: What are companies offshoring? </li></ul><ul><li>Beyond tier one: cool companies in India </li></ul><ul><li>Other destinations </li></ul><ul><li>New approaches to global sourcing </li></ul><ul><li>Recommendations: doing outsourcing right </li></ul>
  25. 25. Beyond the tier one Indian vendors <ul><li>Covansys </li></ul><ul><li>Kanbay </li></ul><ul><li>ThoughtWorks </li></ul><ul><li>Syntel </li></ul><ul><li>Perot Systems </li></ul><ul><li>ITC </li></ul><ul><li>Symphony Services </li></ul><ul><li>Ness Technologies </li></ul><ul><li>Keane </li></ul><ul><li>i-flex solutions </li></ul><ul><li>Patni Computer Systems </li></ul><ul><li>Sapient </li></ul><ul><li>Hexaware Technologies </li></ul><ul><li>NIIT </li></ul><ul><li>L&T Infotech </li></ul><ul><li>Persistent Systems </li></ul>
  26. 26. Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services trends: What are companies offshoring? </li></ul><ul><li>Beyond tier one: cool companies in India </li></ul><ul><li>Other destinations </li></ul><ul><li>New approaches to global sourcing </li></ul><ul><li>Recommendations: doing outsourcing right </li></ul>
  27. 27. Favorite offshore country is still India Base: 100+ global CIOs and business leaders surveyed at PatniConnect 2006 Source: Patni Computer Systems and Forrester Research
  28. 28. China <ul><li>China is an attractive outsourcing destination for companies trying to enter the Chinese market or who already have operations there. </li></ul><ul><li>There is a large internal demand for IT service professionals. </li></ul><ul><ul><li>Chinese IT service provider revenue in 2004 was $27 billion, but exports only totaled $633 million.* </li></ul></ul><ul><li>Indian vendors in China are supporting Western clients’ Chinese operations, South Korean clients, or Japanese clients. </li></ul><ul><li>IP laws and language issues are still a problem. </li></ul><ul><li>English-speaking Chinese programmers are at least as expensive as Indian programmers. </li></ul>*Source: Services Outsourcing World Magazine , February 2006
  29. 29. Other geographies have merit but can’t compete with India for scale or maturity <ul><li>Philippines </li></ul><ul><ul><li>Contact centers’ services dwarf software services ($750 million versus $186 million) </li></ul></ul><ul><li>Central and Eastern Europe (Czech Republic, Hungary, Russia, and Poland) </li></ul><ul><li>Mexico </li></ul><ul><li>Brazil </li></ul><ul><li>The Caribbean </li></ul><ul><li>South Africa </li></ul><ul><li>Vietnam </li></ul><ul><li>Malaysia </li></ul><ul><li>Rural sourcing! </li></ul>
  30. 30. Agenda <ul><li>General offshoring trends 2006: market dynamics </li></ul><ul><li>Trends: India </li></ul><ul><li>Services trends: What are companies offshoring? </li></ul><ul><li>Beyond tier one: cool companies in India </li></ul><ul><li>Other destinations </li></ul><ul><li>New approaches to global sourcing </li></ul><ul><li>Recommendations: doing outsourcing right </li></ul>
  31. 31. Different approaches to offshoring <ul><li>More agile processes </li></ul><ul><ul><li>Increase communication </li></ul></ul><ul><ul><li>Expose problems earlier </li></ul></ul><ul><li>Connecting the end user to the vendor </li></ul><ul><ul><li>In the right situation (the right vendor, strong users, and good processes), more effective and flexible approach for user </li></ul></ul><ul><ul><li>Reduces costs </li></ul></ul><ul><ul><li>Increases end user satisfaction </li></ul></ul><ul><ul><li>But IT can lose control if governance structure is not sound. </li></ul></ul>
  32. 32. Agile and traditional project timelines Source: September 20, 2004, Best Practices “Offshore Outsourcing And Agile Development”
  33. 33. Connecting the internal user to the vendor can eliminate (or exacerbate) communication difficulties
  34. 34. Captive strategies are popular but ultimately not practical . . . <ul><li>Much of what you use an outsourcer for is absent from this approach. </li></ul><ul><ul><li>Flexible staffing </li></ul></ul><ul><ul><li>Specialist skills </li></ul></ul><ul><ul><li>Process maturity </li></ul></ul><ul><li>It is expensive and difficult to set up a professional services organization in a foreign land. </li></ul><ul><ul><li>Setup costs </li></ul></ul><ul><ul><li>Recruitment and retention costs </li></ul></ul><ul><ul><li>Ongoing and large training investment </li></ul></ul><ul><ul><li>Substantial investment in process optimization — just because you employ staff in China or India doesn’t mean they use quality processes </li></ul></ul><ul><ul><li>Engagement management skills </li></ul></ul>
  35. 35. Captive strategies are popular but ultimately not practical unless . . . <ul><li>Client has a presence in the foreign geography. </li></ul><ul><li>Client wants a presence in foreign geography. </li></ul><ul><li>Legal or regulatory reasons compel the client to employ resources that are processing certain transactions, etc. </li></ul><ul><li>Client is in the IT services or high-tech business. </li></ul><ul><li>Client wants to be in the IT services business </li></ul>
  36. 36. Recommendations <ul><li>Invest in internal preparation. </li></ul><ul><li>Understand the market before you enter it. </li></ul><ul><li>Manage your expectations. </li></ul><ul><li>Select vendors that can accommodate your needs and maturity level. </li></ul>
  37. 37. Thank you Stephanie Moore +1 203/221 2859 [email_address] www.forrester.com

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