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Some technologies that influence outsourcing. Some current Collaboration Tools. Outsourcing ... No missing children's birthday party, piano recital, and softball games ... – PowerPoint PPT presentation

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Title: Outsourcing

  • Drivers and Benefits
  • Risks and Disadvantages
  • Some technologies that influence outsourcing
  • Some current Collaboration Tools
  • Outsourcing
  • Friend or Foe?
  • What is outsourcing?
  • Some examples of outsourced activities
  • Poor candidates of activities for outsourcing
  • Terminology
  • U.S. outsources to India

What is Outsourcing?
  • Outsourcing
  • Client hires vendor to perform task(s) for client
  • Example GM (client) hires another company
    (vendor) to perform telephone related services
    for GM.

Examples of Activities Outsourced
  • Cafeterias, janitorial services, copy centers,
    trucking, building maintenance, security,
    payroll, legal services
  • Small banks outsource check processing function
    to larger banks.
  • Activities that have a high degree of variance
    (one day 50 employees needed, next day only 10
    are needed).
  • Auto/Manufacturing

Examples of Activities Outsourced
  • IT Outsourcing
  • Examples IT application management, IT
    application development, data center operations,
    quality assurance etc.
  • Business Process Outsourcing
  • Examples Outsource HR, Accounting, Financials
  • Gartner predicts that the worldwide market for IT
    and business process outsourcing services will
    increase from 582 billion in 2004 to 769
    billion in 2009.

Poor Candidates for Outsourcing/Offshoring
  • Core competency related activities
  • National Security related activities
  • Local knowledge requirement
  • New York City parking tickets were processed in
  • New Jerseys welfare help line calls were
    answered in India
  • Medical diagnostics?
  • Tax returns?

Terminology (continued)
  • Multisourcing
  • Multiple vendors for clients outsourced project
  • Example GMs Brazilian e-commerce site crashed
    in 2003
  • Vendors Oracle, ATT, Microsoft, Cisco, EDS,
  • GM (7.5 billion) IT Outsourcing contract with
  • EDS, IBM, Capgemini, and Wipro Ltd.
  • Onshoring
  • Vendor in the same home country as client
  • Example GM (client) and ATT (vendor)
  • Nearshoring
  • Vendor in a country closer to clients home
  • Example Nike (Beaverton) could hire Indosoft

Terminology (Continued)
  • Global Outsourcing or Offshoring
  • Vendor and client in different countries
  • Example Amsterdam-based ABN Amro (client) and
    IBM (vendor)
  • Captive Offshoring
  • Client owns vendor (offshore unit) in foreign
  • Example IBM (Beaverton) hires IBM (India)

Global Sourcing An irreversible trend
HP Servers Path to Market
U.S. Outsources to India
  • 80 percent of U.S. offshore outsourcing dollars
    go to India
  • The U.S. is Indias biggest customer/60-70 of
    Indian market
  • Indias software export market was about 8
    billion last year and has been growing at about
    30 - 50 percent for the past five years
  • This market was a mere 20 million in 1989
  • India exports software to nearly 100 countries

Source Nasscom Marty McCaffrey Giga
Information Group
Video CBS (2004)
  • Why did U.S. select India?
  • What were some risks of outsourcing to India?
  • How did U.S. mitigate country risks of India?
  • What are some examples of activities that are
    outsourced to India?

SWOT Factors for India
  • Weaknesses
  • Infrastructure
  • Cultural Differences
  • Distance from US
  • FUD over Pakistan
  • Legal System
  • Strengths
  • Solid History of Software Development
  • English Proficiency
  • Government Support
  • Process and Quality Focus
  • Skilled, Educated Resources
  • Entrepreneurialism
  • Opportunities
  • BPO and Call Centers
  • Expansion of Existing Relationships
  • Emerging Chinese Market
  • Indian Domestic Market Growth
  • Threats
  • Competition for Resources
  • Over Promise/Under Deliver
  • Rising Costs
  • Competition from Other Countries
  • Corruption, Piracy, Trust

Examples of activities outsourced to India
  • Call Centers
  • Debt Collection
  • Tech Support
  • Customer Service
  • Stock analysis
  • Tax returns
  • Medical Diagnostics
  • Software Development (e.g., Y2K)

Drivers of Outsourcing
  • Vendor excels in complementary core competencies
  • Global Economy
  • Faster time to market
  • Geography is history!?
  • American products more affordable
  • Differential tax rates and tax benefits

Drivers of Outsourcing
  • Productivity gains
  • 24x7 workforce
  • Using time zone differences to clients benefit
  • Economic benefits to client and vendor
  • For every 1 dollar off shored, U.S. benefits
    1.12 - 1.14
  • (McKinsey Global Institute - 2003)

Hidden Costs of Outsourcing
  • Costs for identifying and evaluating vendors
  • Costs of transitioning to a new vendor
  • Costs of monitoring vendors
  • Legal Costs
  • Costs of losing control of the outsourced process
    or its integration with core processes

Hidden Costs of Outsourcing (Continued)
  • Special infrastructure costs
  • Costs of providing security
  • Costs to ensure privacy
  • Training costs, speech and accent neutralization,
    and turnover costs
  • Costs of lost business due to unforeseen events
  • Costs of providing basic conveniences to vendors
    employees (cafeteria, transportation)

Risks of Outsourcing
  • Country Risks
  • Trade constraints imposed by governments
  • Exchange rate fluctuations
  • Poor Infrastructure
  • Contracts binding in both legal systems?
  • Security risks
  • Language risks
  • Cultural bias (works both ways)
  • Cultural differences (Sub-cultures and
    micro-cultures within each organization)

Risks of Outsourcing
  • Loss of Jobs
  • Vendor Risks
  • Pricing Risks
  • Contract Risks
  • Post contract re-negotiations
  • Changing business conditions
  • Scope and price creep
  • Protection of Intellectual Property (IP)

Risks of Outsourcing
  • Strategic Risks
  • Lose touch with customer or suffer negative image
  • Sensitive information of client shared with
  • Vendor serves client and clients competitors
  • Mediocrity vs. competitive advantage
  • Dwindling career paths at client firm with regard
    to activities that are outsourced
  • Lose control of process
  • Breakdown in integration of process

Some key technologies that have influenced
  • Computer Networks
  • Fiber Optics
  • Multiplexing
  • Satellite
  • Scanning technology
  • Voice Communication (Voice Over IP)
  • Wiki

Some key technologies that have influenced
  • Video Conferencing Tools
  • WebEx
  • Halo
  • Telepresence
  • http//newsroom.cisco.com/Newsroom/flash/evp/Flash
  • http//video.aol.com/video-detail/ciscos-on-stage-

Some benefits of WebEx
  • Affordable to many businesses
  • Requires knowledge of less complex IT tools
    (e.g., computer, phone)
  • Share
  • Messages, Whiteboards, files, presentations,
    applications, desktops
  • Save/Record/Playback meeting

Benefits of Halo/Telepresence
  • Collapsing time frame on decisions Faster time
    to market
  • Less tired/exhausted no jet lags no long
    lines at airport
  • More creativity/innovation
  • More problem solving and collaborative success

Benefits of Halo/Telepresence
  • Quality audio and video
  • Life Size and clarified images where necessary
  • HD lens for document sharing
  • Share desktop
  • Focus on experience not on technology (click of
    a mouse)

Benefits of Halo/Telepresence
  • Allows for perfect audio collaboration of
    overlapping conversations
  • Eliminate distance constraints
  • Cheaper travel expenses
  • No missing childrens birthday party, piano
    recital, and softball games
  • Telepresence Different products for different
    target markets Interoperability
  • http//www.cisco.com/

Outsourcing A friend or foe?
  • Opportunities
  • The offshore outsourcing industry is predicted to
    grow and expand
  • Dont fight the trend---find out how you can
    engage in it!
  • Become conversant with the offshore industry
  • Project management and leadership
  • Geographically dispersed team members
  • IT Innovation, IT project management, aligning
    IT with business strategy (right blend of
    technical and business/user requirements vs. pure
    technical requirements)
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