Offshoring benefits such as lower costs are still valid, but a reassessment is needed. While offshoring saved money initially, hidden costs and wage increases in countries like India have reduced savings. Government actions now prohibit some offshore outsourcing. New risks have also emerged, so strategic objectives and requirements should be re-evaluated to determine if the current offshore model still fits or if onshoring or new options should be considered. A thorough review process assessing business changes, assumptions, costs, quality and objectives is recommended to inform contract renewal decisions.

1. Offshoring Benefits and Advantage, Still the Same in 2011 as they were in 2001?H. Curtis Herge, Jr., COPDirector, Solutions DevelopmentCDI IT Solutions17177 Preston Road Suite 300Dallas, TX 75248-1243www.cdi-its.com (585) 260-3261 Mobile(972) 728-8310 Dallas TX OfficeCurt.Herge@cdicorp.com 1

2. CDI IT SOLUTIONS2

3. with CURT HERGEApril 28, 2011: The Situation3

4. Complications?Momentum & Reluctance to ChangeIAOP4

5. Outsourcing Still Makes Perfect Sense, But From Where?Evolve With the Times / Technology?80% of the people who work in mainframe support are 50 years of age or older.“The Mainframe Skills Shortage”, William HoffmanA perplexing combination of factors … is compounding the ability to add mainframe talent, including companies trying to reduce costs through outsourcing mainframe jobs to independent service organizations or offshore, an increasing but still inadequate infrastructure within universities to teach mainframe capabilities.InformationWeek 1979, Michael E. Porter, “How Competitive Forces Shape Strategy” Harvard Business Review“Threat of new Entrants”Internet, VoIPNew competitors are just a mouse-click awayBusiness strategies mustevolve with the times / technology Problem: Outsourced Mainframe operations require skills like MVS, CICS, IMS, DB2. They will remain critical for many companies to remain a “going concern” for another 10+ years. Offshore supply is fixed. USA demand is growing logarithmically due to demographics/retirements.Solution: Re-onshoring to a new workforce service delivery model.5

6. Your Role in the 5-Stage Outsourcing ProcessBusinessStrategyThe process forms a closed loop as the management of the current relationship sets the stage for what’s strategically possible in the future.9.6 Ability to develop a ‘transition back’ plan and model in event of termination and including the plan as a part of the contract model. © IAOP OPBOK6

7. 4 Reasons to Re-Assess Outsourced Offshoring DecisionsOffshoring unto itself is not an inherently bad option!However, megatrends taken together cause the need to reconfirm old assumptions and decisions made are still on solid foundations: transformative patterns of economic, social or environmental activity

8. changes in the way successful businesses operate

9. adjustments to how consumers live and make buying decisions

10. how populist politicians address social and economic issues

11. why core technologies used are creating demands for skills that are quickly becoming scarceFour Reasons to Re-Assess:Offshoring savings are often not realized as assumed by their initial business caseOffshoring has placed corporate reputations in jeopardyUS Federal, State and Local Governmental actions now prohibit or have created barriers to IT offshoringNew offshoring business risks have arisen7

12. Offshoring Savings Are Often Not Realized as AssumedInflation in India is more than double that in US. As offshore locations grow and westernize, prices and wages increase. India’s CPI was 10.9% (2009 est.).Over the last three years, U.S. firms also had to contend with a weak dollar against foreign currencies, resulting in higher-than-expected invoices paid in U.S. dollars. The Indian rupees per US dollar exchange has changed 13% in three years. www.cia.gov “Hidden Cost” industry averages of offshoring lost productivity (2 – 4%) and cost of Governance (3-5%) bring into question any business case’s assumptions for offshoring that were written years ago. IAOP© Outsourcingsforum.com 8

13. Impact of economics on offshoring Massive wage jumps in India and China of up to 100% a year mean that cost advantages of offshoring to these countries is rapidly disappearing.

14. Huge salary inflation impact for senior executives in India and China make offshoring economics harder.

15. Up to 100% wage inflation in China and 40% in India for experienced business leaders.

16. Operating costs of managing offshore outsourced operations. Impact of low cost workers arriving in places like UK, France, Germany, Italy driving down labor charges and altering costs of services in … Chicago. Offshore outsourcing business efficiency and strategy needs review. 9

17. Offshoring Has Placed Corporate Reputations in Jeopardy"Outsourced" is an NBC comedyAFL-CIO created a searchable database Young workers’ optimism has slumped over the past 10 years. Buying attitudes reflect brand awareness. Financial services customers seek reassurance that their data is safe, even though it is being maintained thousands of miles awayISO 26000: Companies are thinking twice about employing workers in some countries. Mutual funds now evaluate companies against social criteria. 10

18. US Federal, State and Local Governmental ActionsA HypotheticalUS Federal Senate bill S. 3816 "Creating American Jobs and Ending Offshoring Act“ dpc.senate.govThe RealityITT paid a $100 million penalty, one of the largest penalties ever in a criminal case. violation of the Arms Export Control ActITT exported or caused to be exported defense-related technical data to China, Singapore, and the United Kingdom without having first obtained a license or written authorization from the State Department. The technical data included information about a laser counter measure known as a "light interference filter" for military night vision goggle systems.State of Ohio “Executive Order 2010-09S”The December 2010 State of Ohio Request for Proposal “ODJFS HATS II System – 0A1080” specifically states: “Data and work performed must remain within the boundaries of the continental United States for this Project.” http://findarticles.com/p/articles/mi_6712/is_58_233/ai_n29340678/ 11

19. New Offshoring Business RisksStrategic Risks: JPMorgan Chase’s decision to first outsource IT and then bring it back in-house stands as a cautionary tale for any CIO considering an outsourcing megadeal. A strategic risk is accepted when outsourcing offshore. CIO MagazineOperational Risks: Impact on the organization’s people Integrating the offshore provider’s processes into the business’sPerformance, security, data protection and privacy, business disruption, etc. Transactional Risks: Internal controlsTermination clausesDispute resolution, liability, indemnity, warrantiesAsset transfersSarbanes-OxleyHIPAABasel II 12