Outsourcing IT:
Global Opportunities and
Challenges
Venu Nair, PMP
Outsourcing Defined..
?
Outsourcing:
?
Farming out of services to a third party.
?
With regards to IT, outsourcing can include anything from
outsourcing all management of IT to an IBM or !" or
outsourcing a very small and easily defined service, such
as disaster recovery or data storage, and everything in
#et$een.
?
%ften used interchangea#ly&and incorrectly&$ith
offshoring ' it(s a su#set
?
)lassic Ma*e vs. Buy !ecision
?
+lo#ali,ation - .The World Is Flat/ #est seller #y
Thomas Freedman
Offshore Outsourcing
?
Offshore outsourcing of soft$are development has
#ecome a common practice in recent years.
?
Most of the Fortune 011 companies have or started to
outsource soft$are development, maintenance or
support to soft$are companies in India.
?
India has the ma2ority in organi,ations $orld$ide that
have achieved 3evel 0, the highest in "W-)MM
ratings
What is a make or buy decision?
?
"ometimes it ma*es more sense to #uy services
rather than perform the tas* in-house
?
The argument for outsourcing
?
Proficiency
?
)omple4ity
?
The argument against outsourcing
?
)ontrol
?
Fle4i#ility
?
The verdict
?
ither can ma*e operational and financial sense
?
5rguments for, can #ecome arguments against
Deciding hether to make or buy
?
What do you $ant to accomplish6
?
7o$ is it done no$6
?
What can you do6
?
Ma*e
?
Buy
!et ob"ecti#es
?
What6
?
Improve 8uality
?
9educe time
?
)ut costs
?
Why6
?
9ationale
?
Importance
?
When6
?
Timeframe
$eeds assessment
?
Identify your needs
?
The more crucial the tas*, the more details need to #e
specified
?
Wor*flo$ and outputs
?
Policies
?
"teps
?
Time increments
?
"taff and system capa#ilities
?
)lassify your needs
?
3ong-term, medium-term, immediate
?
3o$, medium, and high priority
%e#ie options
?
%utsourcing
?
5vaila#ility of options
?
)ompetitor offerings
?
5ppropriateness
:esp, offshoring;
?
+ains from technology
?
Interface issues
?
In-house
?
)ore competencies
?
)ompeting priorities
?
)areer path
?
"*ills to tas*
?
"upervision
?
)orporate culture
Outsourcing &d#antages
?
Financial
?
5void heavy capital investment, thus releasing funds for other
uses.
?
Improve cash flo$ and cost accounta#ility.
?
Technical
?
Be freer to choose soft$are due to a $ider range of hard$are.
?
5chieve technological improvements more easily.
?
Management
?
)oncentrate on developing and running core #usiness activity.
?
!elegate IT development :design, production, and ac8uisition;
and operational responsi#ility to supplier.
Outsourcing &d#antages (cont.)
?
Human Resources
?
!ra$ on specialist s*ills, availa#le from a pool of e4pertise.
?
nrich career development and opportunities for staff.
?
Quality
?
)learly define service levels.
?
Improve performance accounta#ility.
?
Flexibility
?
9espond 8uic*ly to #usiness demands.
?
7andle IT pea*s and valleys more effectively.
Outsourcing !trategies
(Clemons, 2000)
1. Understand the project. )lients must have a high degree of
understanding of the pro2ect, including its re8uirements, the
method of its implementation, and the source of e4pected
economic #enefits.
2. i!ide and con"uer. !ividing a large pro2ect into smaller
and more managea#le pieces $ill greatly reduce
programmatic ris* and provides clients $ith an e4it strategy if
any part of the pro2ect fails.
#. $lign incenti!es. !esigning contractual incentives #ased
on activities that can #e measured accurately can result in
achieving desired performance.
Outsourcing %isks
(Clemons, 2000)
1. %hir&ing occurs $hen a vendor deli#erately underperforms
$hile claiming full payment.
?
e.g., #illing for more hours than $or*ed, providing
e4cellent staff first and later replacing them $ith less
8ualified ones.
2. 'oaching occurs $hen a vendor develops a strategy and
strategic application for a client and then uses them for other
clients.
?
e.g., vendor redevelops similar systems for other clients
at much lo$er cost, or vendor goes into client(s #usiness.
#. (pportunistic repricing or holdup occurs $hen a client
enters into a long-term contract $ith a vendor and vendor
changes financial terms at some point or overcharges for
unanticipated enhancements and contract e4tensions.
If 'ou Decide to Outsource
?
Ma*e sure the supplier you choose
?
? months
(essons (earned
?
Manage the relationship and #e hands-on for
at least the first year
?
)larify $ith e4pected outcomes, results,
timeta#les and #udgets
?
"chedule regular progress revie$s
?
valuate regularly
?
Be open and candid
?
5llo$ mista*es and learn from them
?
)onsider them an e4tension of your staff, your
partner
?
Treat them $ith respect
?
!on(t assume that your $ay is the #est or only $ay
?
Be proactive at resolving disputes 8uic*ly
?
Measure regularly in face-to-face meeting :monthly
is preferred;
?
)ommunicate #oth the positives and the challenges
to your provider and to your internal e4ecutive staff
(essons (earned
IT )ailures
(utright )ailure. The
system is never completed,
and little or nothing is
salvaged from the pro2ect.
$bandoned. The system is
completed, including some
or all of the originally
specified features, #ut either
it is never used or usage
stops after a short period.
%caled do*n. The system is
completed and used, #ut
lac*s much of the
functionality of the original
specifications.
Runa*ay. The pro2ect
re8uires much more money
and time than planned,
regardless of $hether it is
ever completed or used.
The following definitions indicate the range of possibilities for the
various types of IT failures:
Cultural &spects
India
*rotocol and Communication
?
One of the lasting contributions of the British Raj is the wide use of English
in business and government. However, accents, style, usage of words differ
in different regions.
?
Indians mix English with their local language. ome Indians! style may be
more indirect than direct, in which case you will need to listen carefully. If
someone is very direct or assertive, he or she will be "nown for this style.
?
#he Indian manner is $olite and res$ectful, es$ecially when dealing with
senior managers or government officials. Res$ect for the hierarchy and
those senior in age or status is ingrained in the culture and affects business
interactions. %or exam$le, in meetings, junior managers may not s$ea" or
disagree $ublicly
?
&unctuality may vary. It!s best to reconfirm a$$ointments. #he $ace of
business varies, de$ending on the region'city and ty$e of business. In
$rivate industries, it!s more com$etitive, es$ecially in newer high(tech
industries and financial services. It may be a good idea to build more time
into schedules and deadlines.
!uper#ising and !ociali+ing
?
&riorities may differ. ometimes family matters ta"e $recedence over
business. ome Indians may not sense the same "ind of urgency, or they
may res$ond, )no $roblem,) which should not be ta"en literally. * $erson
may be conveying what he or she ho$es to do, rather than disa$$oint the
other by saying no.
?
#here is a middle(class of highly trained technocrats who have been to the
best schools, are u$ on the latest management techni+ues and business
jargon, and are fully conversant with ,estern ways of doing business.
#reat them as colleagues rather than uninformed )develo$ing country)
managers.
?
If there is an o$$ortunity to meet your colleagues socially, it!s a good idea
to attend. Relationshi$s are im$ortant in India, and will facilitate your
interactions.
?
,hen sociali-ing, just be aware of some $ersonal $references surrounding
food and alcohol. Hindus avoid beef and many are vegetarian. .uslims do
not eat $or". .any conservative Indians of all religious bac"grounds avoid
alcohol.
Cultural Tips
?
Indians often res$ond $ositively to a +uestion by sha"ing their head in a way
that ,esterners inter$ret as !no/
?
#he word 0no1 has harsh im$lications in India, non(committal answers are
considered more $olite. %or exam$le, if you have to decline an invitation, it!s
more acce$table to give a vague and noncommittal answer such as 0I!ll try1
or 0,e!ll see1 rather than 02o, I can!t.1
?
#he hierarchical nature of Indian society demands that the boss is recogni-ed
as the highest individual in authority.
?
In some offices, em$loyees may rise each time the boss enters the room to
ac"nowledge res$ect.
?
Em$loyees do as they!re told3 even if they "now the boss is wrong, they won!t
argue
?
#al"ing about your friends and family is an im$ortant $art of establishing a
relationshi$ with those involved in the negotiating $rocess.
Cultural Tips - Continued
?
Eating meals with hands is very common India and that is one of the
reasons that finger bowls are $rovided in many elite restaurants
?
Indian culture is what amuel Huntington of Harvard describes as a
0strong1 culture, meaning, in $art, that Indian culture is able to
withstand an influx of outside cultural ideas and $roducts without
losing its own internal identities.
?
,hereas ,estern management techni+ues and business $ractices
were +uic"ly integrated into traditional lifestyles in the growing
Indian software industry, most Indians continue to eat indigenous
foods, watch local movies and #4, and to wear traditional clothing.
,estern com$anies in the vast Indian consumer mar"et, therefore,
have successfully 0Inidani-ed1 their $roducts to a$$eal to the large
middle class.
!ummary
?
It(s not painless, #ut it(s $orth it, if you
e4ecute it $ell.
+ood 3uc* and Than* @ouA
%eference
?
$$$.cio.com ' Various articles on
%utsourcing
?
%utsourcing 3essons 3earned ' "5
)orporation
?
conomist ' 3ondon ' "ummer ?11>
?
%utsourcing and %ffshoring ' Baufmann-
Willis +roup
doc_922252656.ppt
Global Opportunities and
Challenges
Venu Nair, PMP
Outsourcing Defined..
?
Outsourcing:
?
Farming out of services to a third party.
?
With regards to IT, outsourcing can include anything from
outsourcing all management of IT to an IBM or !" or
outsourcing a very small and easily defined service, such
as disaster recovery or data storage, and everything in
#et$een.
?
%ften used interchangea#ly&and incorrectly&$ith
offshoring ' it(s a su#set
?
)lassic Ma*e vs. Buy !ecision
?
+lo#ali,ation - .The World Is Flat/ #est seller #y
Thomas Freedman
Offshore Outsourcing
?
Offshore outsourcing of soft$are development has
#ecome a common practice in recent years.
?
Most of the Fortune 011 companies have or started to
outsource soft$are development, maintenance or
support to soft$are companies in India.
?
India has the ma2ority in organi,ations $orld$ide that
have achieved 3evel 0, the highest in "W-)MM
ratings
What is a make or buy decision?
?
"ometimes it ma*es more sense to #uy services
rather than perform the tas* in-house
?
The argument for outsourcing
?
Proficiency
?
)omple4ity
?
The argument against outsourcing
?
)ontrol
?
Fle4i#ility
?
The verdict
?
ither can ma*e operational and financial sense
?
5rguments for, can #ecome arguments against
Deciding hether to make or buy
?
What do you $ant to accomplish6
?
7o$ is it done no$6
?
What can you do6
?
Ma*e
?
Buy
!et ob"ecti#es
?
What6
?
Improve 8uality
?
9educe time
?
)ut costs
?
Why6
?
9ationale
?
Importance
?
When6
?
Timeframe
$eeds assessment
?
Identify your needs
?
The more crucial the tas*, the more details need to #e
specified
?
Wor*flo$ and outputs
?
Policies
?
"teps
?
Time increments
?
"taff and system capa#ilities
?
)lassify your needs
?
3ong-term, medium-term, immediate
?
3o$, medium, and high priority
%e#ie options
?
%utsourcing
?
5vaila#ility of options
?
)ompetitor offerings
?
5ppropriateness
:esp, offshoring;
?
+ains from technology
?
Interface issues
?
In-house
?
)ore competencies
?
)ompeting priorities
?
)areer path
?
"*ills to tas*
?
"upervision
?
)orporate culture
Outsourcing &d#antages
?
Financial
?
5void heavy capital investment, thus releasing funds for other
uses.
?
Improve cash flo$ and cost accounta#ility.
?
Technical
?
Be freer to choose soft$are due to a $ider range of hard$are.
?
5chieve technological improvements more easily.
?
Management
?
)oncentrate on developing and running core #usiness activity.
?
!elegate IT development :design, production, and ac8uisition;
and operational responsi#ility to supplier.
Outsourcing &d#antages (cont.)
?
Human Resources
?
!ra$ on specialist s*ills, availa#le from a pool of e4pertise.
?
nrich career development and opportunities for staff.
?
Quality
?
)learly define service levels.
?
Improve performance accounta#ility.
?
Flexibility
?
9espond 8uic*ly to #usiness demands.
?
7andle IT pea*s and valleys more effectively.
Outsourcing !trategies
(Clemons, 2000)
1. Understand the project. )lients must have a high degree of
understanding of the pro2ect, including its re8uirements, the
method of its implementation, and the source of e4pected
economic #enefits.
2. i!ide and con"uer. !ividing a large pro2ect into smaller
and more managea#le pieces $ill greatly reduce
programmatic ris* and provides clients $ith an e4it strategy if
any part of the pro2ect fails.
#. $lign incenti!es. !esigning contractual incentives #ased
on activities that can #e measured accurately can result in
achieving desired performance.
Outsourcing %isks
(Clemons, 2000)
1. %hir&ing occurs $hen a vendor deli#erately underperforms
$hile claiming full payment.
?
e.g., #illing for more hours than $or*ed, providing
e4cellent staff first and later replacing them $ith less
8ualified ones.
2. 'oaching occurs $hen a vendor develops a strategy and
strategic application for a client and then uses them for other
clients.
?
e.g., vendor redevelops similar systems for other clients
at much lo$er cost, or vendor goes into client(s #usiness.
#. (pportunistic repricing or holdup occurs $hen a client
enters into a long-term contract $ith a vendor and vendor
changes financial terms at some point or overcharges for
unanticipated enhancements and contract e4tensions.
If 'ou Decide to Outsource
?
Ma*e sure the supplier you choose
?
? months
(essons (earned
?
Manage the relationship and #e hands-on for
at least the first year
?
)larify $ith e4pected outcomes, results,
timeta#les and #udgets
?
"chedule regular progress revie$s
?
valuate regularly
?
Be open and candid
?
5llo$ mista*es and learn from them
?
)onsider them an e4tension of your staff, your
partner
?
Treat them $ith respect
?
!on(t assume that your $ay is the #est or only $ay
?
Be proactive at resolving disputes 8uic*ly
?
Measure regularly in face-to-face meeting :monthly
is preferred;
?
)ommunicate #oth the positives and the challenges
to your provider and to your internal e4ecutive staff
(essons (earned
IT )ailures
(utright )ailure. The
system is never completed,
and little or nothing is
salvaged from the pro2ect.
$bandoned. The system is
completed, including some
or all of the originally
specified features, #ut either
it is never used or usage
stops after a short period.
%caled do*n. The system is
completed and used, #ut
lac*s much of the
functionality of the original
specifications.
Runa*ay. The pro2ect
re8uires much more money
and time than planned,
regardless of $hether it is
ever completed or used.
The following definitions indicate the range of possibilities for the
various types of IT failures:
Cultural &spects
India
*rotocol and Communication
?
One of the lasting contributions of the British Raj is the wide use of English
in business and government. However, accents, style, usage of words differ
in different regions.
?
Indians mix English with their local language. ome Indians! style may be
more indirect than direct, in which case you will need to listen carefully. If
someone is very direct or assertive, he or she will be "nown for this style.
?
#he Indian manner is $olite and res$ectful, es$ecially when dealing with
senior managers or government officials. Res$ect for the hierarchy and
those senior in age or status is ingrained in the culture and affects business
interactions. %or exam$le, in meetings, junior managers may not s$ea" or
disagree $ublicly
?
&unctuality may vary. It!s best to reconfirm a$$ointments. #he $ace of
business varies, de$ending on the region'city and ty$e of business. In
$rivate industries, it!s more com$etitive, es$ecially in newer high(tech
industries and financial services. It may be a good idea to build more time
into schedules and deadlines.
!uper#ising and !ociali+ing
?
&riorities may differ. ometimes family matters ta"e $recedence over
business. ome Indians may not sense the same "ind of urgency, or they
may res$ond, )no $roblem,) which should not be ta"en literally. * $erson
may be conveying what he or she ho$es to do, rather than disa$$oint the
other by saying no.
?
#here is a middle(class of highly trained technocrats who have been to the
best schools, are u$ on the latest management techni+ues and business
jargon, and are fully conversant with ,estern ways of doing business.
#reat them as colleagues rather than uninformed )develo$ing country)
managers.
?
If there is an o$$ortunity to meet your colleagues socially, it!s a good idea
to attend. Relationshi$s are im$ortant in India, and will facilitate your
interactions.
?
,hen sociali-ing, just be aware of some $ersonal $references surrounding
food and alcohol. Hindus avoid beef and many are vegetarian. .uslims do
not eat $or". .any conservative Indians of all religious bac"grounds avoid
alcohol.
Cultural Tips
?
Indians often res$ond $ositively to a +uestion by sha"ing their head in a way
that ,esterners inter$ret as !no/
?
#he word 0no1 has harsh im$lications in India, non(committal answers are
considered more $olite. %or exam$le, if you have to decline an invitation, it!s
more acce$table to give a vague and noncommittal answer such as 0I!ll try1
or 0,e!ll see1 rather than 02o, I can!t.1
?
#he hierarchical nature of Indian society demands that the boss is recogni-ed
as the highest individual in authority.
?
In some offices, em$loyees may rise each time the boss enters the room to
ac"nowledge res$ect.
?
Em$loyees do as they!re told3 even if they "now the boss is wrong, they won!t
argue
?
#al"ing about your friends and family is an im$ortant $art of establishing a
relationshi$ with those involved in the negotiating $rocess.
Cultural Tips - Continued
?
Eating meals with hands is very common India and that is one of the
reasons that finger bowls are $rovided in many elite restaurants
?
Indian culture is what amuel Huntington of Harvard describes as a
0strong1 culture, meaning, in $art, that Indian culture is able to
withstand an influx of outside cultural ideas and $roducts without
losing its own internal identities.
?
,hereas ,estern management techni+ues and business $ractices
were +uic"ly integrated into traditional lifestyles in the growing
Indian software industry, most Indians continue to eat indigenous
foods, watch local movies and #4, and to wear traditional clothing.
,estern com$anies in the vast Indian consumer mar"et, therefore,
have successfully 0Inidani-ed1 their $roducts to a$$eal to the large
middle class.
!ummary
?
It(s not painless, #ut it(s $orth it, if you
e4ecute it $ell.
+ood 3uc* and Than* @ouA
%eference
?
$$$.cio.com ' Various articles on
%utsourcing
?
%utsourcing 3essons 3earned ' "5
)orporation
?
conomist ' 3ondon ' "ummer ?11>
?
%utsourcing and %ffshoring ' Baufmann-
Willis +roup
doc_922252656.ppt