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Lect 4 it ousourcing (pdf)
Offshore outsourcing began in the 1970s when US companies hired technical staff from India to work in service centers to save costs. India developed a skilled base of technologists who could work on a variety of operating systems and hardware. The pros of offshore outsourcing include cost savings up to 80%, focusing on core competencies, and meeting demand for temporary work. However, cons include communication barriers, quality discrepancies, and security issues. While India holds 85-90% of the offshore outsourcing market, other countries like China, Philippines, and Russia are also meeting demands for inexpensive programming talent.
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Lect 4 it ousourcing (pdf)
- 1. OFFSHORE OUTSOURCING Operations ofIT Business onshore, offshore 1
- 2. Introduction OFFSHORE OUTSOURCING • Beganin 1970s with U.S. computer manufacturers hiring technical staff from India for service centers (initially to save costs). • India developed skilled base of technologists (understand wide range of ops systems and service a variety of hardware). 2
- 3. Pros of theTrade OFFSHORE OUTSOURCING • Cost savings – up to 80 percent • More resources = attention to core competence,p , design and business knowledge • Offshore needs meet ith competence• Offshore needs meet with competence • Demand for temporary work and consulting met • On-demand, at short notice, without commitments 3
- 4. Cons of theTrade OFFSHORE OUTSOURCING • Communication due to language/cultural barriers • Time differentiationsTime differentiations • Technical/skill mismatches • Quality discrepancies/lack of repeatable process • Security issuesy • Bad management/hierarchical stubborn organizations 4
- 5. Not Just India OFFSHOREOUTSOURCING Meeting growing demands for inexpensive yet competent programming talent:competent programming talent: • ChinaChina • Philippines • Russia 5
- 6. Why India??? OFFSHORE OUTSOURCING y •Most mature • Holds 85 90 percent of offshore outsourcing• Holds 85-90 percent of offshore outsourcing market today • Maturity due to government support for past decades and their continued improvements of the education system built by the British 6
- 7. Size of Market OFFSHOREOUTSOURCING In 2003: 5% of the US IT services market is operating offshore 300 of Fortune 500 have a relationship with anp Indian IT service firm 360,000 US jobs moved offshore $7 billion dollar market$7 billion dollar market In 2005: 15% of US workforce (2 million) moved offshore. $10 billion market In 2007: $15 billion market By 2015:3.3million US jobs and $136 billion in wages will 7 y j g transfer offshore.
- 8. Offshore Cost Savings OFFSHOREOUTSOURCING g US Companies charge $80 to $120 per hour for programmers S b IBM p g p p g Offshore providers charge about $40 per hour More than 50% Survey by IBM Consulting Services, Respondents asked Less than 10% Thirty to 50% 9% 9% p percentage of savings from offshore i f IT 40% 42% outsourcing of IT services and software development Ten to 30% 42% 8 p
- 9. Offshore Quality Improvement OFFSHOREOUTSOURCING y UnchangedSome Decrease Survey by IBM Consulting Services Respondents asked Significant Improvement 7% 25% 27% Services, Respondents asked Level of quality change After offshore outsourcing of 41% IT services and software development Some Improvement 9
- 10. Offshore: The QualityIssue OFFSHORE OUTSOURCING y Top 5 Indian Vendors Level 5Level 4 Number of SEI Capability Maturity Organizations Countries p 4628India 10 (2)Russia 20China 6973World 10 (2)Russia Company: Annual Revenuesp y Tate Consultancy Services $689m Wipro Technologies $661.7m Infosys Technologies $413.9m 10 Satyam Computer Services $308.2m Cognizant Technology Solutions $177.8
- 11. IT Activities MovingOffshore OFFSHORE OUTSOURCING g Data Centers Data Integration & Cleansing Transaction Processing BPO Data Centers Contact Centers Infrastructure Management Packaged Application Implementation g g IT Consulting Legacy Transformation Application Outsourcing Application Design And Development Application Maintenance Software Testing 11 Percentage of Respondents And Development 0 10 20 30 40 50 60 70
- 12. Most Important VendorSelection Criteria OFFSHORE OUTSOURCING Significant Presence in US Multivendor Capabilities Near-shore Capabilities B i P E ti Certifications Full Outsourcing Capability Significant Presence in US Speed of Delivery Project Management Capabilities Business Process Expertise Vendor Maturity Cost Quality of Resources 12 0 1 2 3 4 5 6 7 Not Important Extremely Important
- 13. Offshore Outsourcing Benefits OFFSHOREOUTSOURCING g • Cost Savingsg • Increased Productivity Ti t M k t• Time to Market • Access to Expertise and Skills • 24/7 Operation • Higher Software Quality• Higher Software Quality • Make capital funds available-Cash infusion 13 • Sharing of risks
- 14. Offshore Outsourcing Issues OFFSHOREOUTSOURCING g • Unclear objectives and design requirements • Lack of Control• Lack of Control • Time zone differences • Language barriers • Domestic layoffsDomestic layoffs 14
- 15. Outsourcing Inhibitors OFFSHORE OUTSOURCING g •GeopoliticalRisks •Time Zone Differences L k f I f t t•Lack of Infrastructure •Readiness of Client •Client’s Fear of Losing Control •Loss of Critical Skills •Client’s Fear of Loss of Confidentiality 15 •Lack of Understanding of Business
- 16. Outsourcing Enablers OFFSHORE OUTSOURCING g •Client/Provider Relationships Trust FlexibilityClient/Provider Relationships, Trust, Flexibility • Comprehensive Contract/Project Management • Large Pool of Highly Skilled Resources • Advanced Infrastructure, Telecommunications, Facilities • Mature Delivery Models • Business Oriented People Offshore• Business Oriented People Offshore • SLAs/Metrics Well Defined and Understood • Clear Objectives • Top-down Support 16
- 17. New Model Differentiators OFFSHOREOUTSOURCING On-site Support Local staffing, project management and bench strength through staffing company partnerships US Project Management Experienced, US-based management team for effective project management Onshore Cost Equal to or less than competition Solution Oriented Interactive, collaborative, and end-to-end business perspective Time Zone Work day corresponding to that of the US Culture Westernized culture and values correspond to that of the US, facilitating communication and understanding Offshore Geography Provides geographic alternative Communication English speaking dialect culture similar to US Scope Services are scaleable and available for small and medium companies 17 Communication English speaking dialect, culture similar to US
- 18. GLOBAL OUTSOURCING MODEL OFFSHOREOUTSOURCING Offshore Completely outsourced to single offshore provider Riskiest Onshore provider Bring offshore resources to local geography Costlier, more overhead Mixed to local geography overhead Combination of onshore/ Most effective Mixed offshore model 18
- 19. On-site/Off-site Resource Mix OFFSHOREOUTSOURCING • On-site/off-site mix varies by project:y p j – Size of project – Complexity of project/technology L l f ifi it f i t– Level of specificity of requirements – Duration of project • On-site team is critical and must be skilled in global projects – Technical ‘translation’ – Cultural differences – Compliance with quality standards – Commitment to plan 19 – Commitment to plan